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MARUBENI CORPORATION

vs.
FELIX LIRAG
G.R. No. 130998
August 10, 2001

FACTS:

Pursuant to an oral consultancy agreement, respondent Felix Lirag filed with the RTC a
complaint for specific performance and damages claiming that petitioners owed him the sum
of P6,000,000.00 representing commission. Lirag claimed that petitioner Ryohei Kimura hired
his consultancy group for the purpose of obtaining government contracts of various
projects. Petitioners promised to pay him six percent (6%) consultancy fee based on the total
costs of the projects obtained.

The consultancy agreement was not reduced into writing because of the mutual
trust between Marubeni and the Lirag family. Their close business and personal relationship
dates back to 1960, when respondents family was engaged in the textile fabric manufacturing
business, in which Marubeni supplied the needed machinery, equipment, spare parts and raw
materials.

One of the projects handled by respondent Lirag, the Bureau of Post project, amounting
to P100M was awarded to the Marubeni-Sanritsu tandem. Despite respondents repeated
formal verbal demands for payment of the agreed consultancy fee, petitioners did not pay.

Petitioners denied the consultancy agreement. Petitioner Ryohei Kimura did not have the
authority to enter into such agreement in behalf of Marubeni. Only Mr. Morihiko Maruyama,
the general manager, upon issuance of a special power of attorney by the principal office in
Tokyo, Japan, could enter into any contract in behalf of the corporation. Mr. Maruyama did
not discuss with respondent Lirag any of the matters alleged in the complaint, nor agreed to
the payment of commission. Moreover, Marubeni did not participate in the bidding for the
Bureau of Post project, nor benefited from the supposed project.

ISSUES:

Whether or not there was a consultancy agreement between petitioners and respondent.

HELD:

No consultancy agreement between petitioners and respondent from which the latter
could anchor his claim for a six percent (6%) consultancy fee on a project that was not
awarded to petitioners based on the testimonial and documentary evidence. Assuming for the
sake of argument that an oral consultancy agreement has been perfected between the parties,

Page 1 of 93
respondent Lirag could not still claim fees on the project that has not been awarded to
Marubeni.

Even respondent admitted that the Bureau of Post project was not awarded to Marubeni,
but to Sanritsu. Marubeni did not even join the bidding for the Bureau of Post project.

Respondent could not claim from Sanritsu because of the absence of any agreement
between him and the latter. Hence, he cannot be entitled to the 6% commission, since it was
not his client who won in the bidding.

Not because two foreign companies came from the same country and closely worked
together on certain projects would the conclusion arise that one was the conduit of the other,
thus piercing the veil of corporate fiction.

Aside from the self-serving testimony of respondent regarding the existence of a close
working relationship between Marubeni and Sanritsu, there was nothing that would support
the conclusion that Sanritsu was an agent of Marubeni. Even Mr. Lito Banayo, a witness
presented by respondent admitted that he did not see any contract between Marubeni and San
Ritsu.

As explained by petitioner Shoichi One, Marubeni Phils. could enter into a consultancy
agreement only after submitting a recommendation to the principal headquarters in Tokyo,
Japan. If the office in Tokyo, Japan agrees to hire consultants, it would then give a power of
attorney to its general manager in Manila authorizing the latter to enter into such agreement.

In the instant case, the parties did not reach the second stage as the headquarters in
Tokyo, Japan did not see it fit to hire a consultant as they decided not to participate in the
bidding. Hence, no consultancy agreement was perfected, whether oral or written. There was
no absolute acceptance of respondents offer of consultancy services.

Page 2 of 93
ADALIA B. FRANCISCO
vs.
RITA C. MEJIA
G.R. No. 141617
August 14, 2001

FACTS:

Adalia Francisco was the Treasurer of Cardale Financing and Realty Corporation
(Cardale). Cardale, through Francisco, contracted with Andrea Gutierrez for the latter to
execute a deed of sale over certain parcels of land in favor of Cardale. It was agreed that
Gutierrez shall hand over the titles to Cardale but Cardale shall only give a downpayment, and
later on full payment in installment. As security, Gutierrez shall retain a lien over the
properties by way of mortgage. Nonetheless, Cardale defaulted in its payment. Gutierrez then
filed a petition with the trial court to have the Deed rescinded. While the case was pending,
Gutierrez died, and Rita Mejia, being the executrix of the will of Gutierrez took over the
affairs of the estate. The case dragged on for 14 years because Francisco lost interest in
presenting evidence. And while the case was pending, Cardale failed to pay real estate taxes
over the properties in litigation hence, the local government subjected said properties to an
auction sale to satisfy the tax arrears. The highest bidder in the auction sale was Merryland
Development Corporation (Merryland). Apparently, Merryland is a corporation in which
Francisco was the President and majority stockholder. Mejia then sought to nullify the auction
sale on the ground that Francisco used the two corporations as dummies to defraud the estate
of Gutierrez

ISSUE:

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

HELD:

No. Only Francisco shall be held liable to pay the indebtedness to the Gutierrez estate.
What was only proven was that Francisco defrauded the Gutierrez estate as clearly shown by
the dubious circumstances which caused the encumbered properties to be auctioned. By not
disclosing the tax delinquency, Francisco left Gutierrez in the dark. She obviously acted in
bad faith. Franciscos elaborate act of defaulting payment, disregarding the case, not paying
realty taxes (since as treasurer of Cardale, shes responsible for paying the real estate taxes for
Cardale), and failure to advise Gutierrez of the tax delinquencies all constitute bad faith. The
attendant fraud and bad faith on the part of Francisco necessitates the piercing of the veil of
corporate fiction in so far as Cardale and Francisco are concerned. Cardale and Francisco
cannot escape liability now that Cardale has been dissolved. Francisco shall then pay
Guttierez estate the outstanding balance with interest (total of P4.3 + million). As regards
Merryland however, there was no proof that it is merely an alter ego or a business conduit of

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Francisco. Merryland merely bought the properties from the auction sale and such per se is
not a wrongful act or a fraudulent act. Time and again it has been reiterated that mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality. Hence, Merryland cant be held solidarily liable with Francisco.

Page 4 of 93
PHILIPPINE NATIONAL BANK
vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY
G.R. No. 142936
April 17, 2002

FACTS:

National Sugar Development Corporation (NASUDECO), is also a semi-government


corporation and the sugar arm of the PNB. Defendant PNB acquired the assets of the
defendant PASUMIL that were earlier foreclosed by the Development Bank of the Philippines
(DBP) under LOI No. 311. PNB organized NASUDECO to take ownership and possession of
the assets and ultimately to nationalize and consolidate its interest in other PNB controlled
sugar mills; that the defendant PASUMIL engaged the services of plaintiff for electrical
rewinding and repair, most of which were partially paid by the defendant PASUMIL, leaving
several unpaid accounts with the plaintiff.

That out of the total obligation of P777,263.80, the defendant PASUMIL had paid only
P250,000.00, leaving an unpaid balance, as of June 27, 1973, amounting to P527,263.80; that
out of said unpaid balance of P527,263.80, the defendant PASUMIL made a partial payment
to the plaintiff of P14,000.00, in broken amounts, leaving an unpaid balance of P513,263.80;
that the defendant PASUMIL and the defendant PNB, and now the defendant NASUDECO,
failed and refused to pay the plaintiff their just, valid and demandable obligation; that the
President of the NASUDECO is also the Vice-President of the PNB. Plaintiff besought this
official to pay the outstanding obligation of the defendant PASUMIL, inasmuch as the
defendant PNB and NASUDECO now owned and possessed the assets of the defendant
PASUMIL. Petitioners posit that they should not be held liable for the corporate debts of
PASUMIL, because their takeover of the latters foreclosed assets did not make them
assignees. On the other hand, respondent asserts that petitioners and PASUMIL should be
treated as one entity and, as such, jointly and severally held liable for PASUMILs unpaid
obligation.

ISSUE:

Whether or not PNB is liable for the unpaid debts of PASUMIL to respondent?

HELD:

No. As a rule, a corporation that purchases the assets of another will not be liable for
the debts of the selling corporation, provided the former acted in good faith and paid adequate
consideration for such assets, except when any of the following circumstances is present: (1)
where the purchaser expressly or impliedly agrees to assume the debts, (2) where the
transaction amounts to a consolidation or merger of the corporations, (3) where the

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purchasing corporation is merely a continuation of the selling corporation, and (4) where the
transaction is fraudulently entered into in order to escape liability for those debts.

The respondent failed to establish by competent evidence that petitioners separate


corporate veil had been used to conceal fraud, illegality or inequity. First, other than the fact
that petitioners acquired the assets of PASUMIL, there is no showing that their control over it
warrants the disregard of corporate personalities. Second, there is no evidence that their
juridical personality was used to commit a fraud or to do a wrong; or that the separate
corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of
another entity or person. Third, respondent was not defrauded or injured when petitioners
acquired the assets of PASUMIL. PNB, as the second mortgagee, redeemed from DBP the
foreclosed PASUMIL assets.These assets were later conveyed to PNB for a consideration, the
terms of which were embodied in the Redemption Agreement.PNB, as successor-in-interest,
stepped into the shoes of DBP as PASUMILs creditor. By way of a Deed of Assignment, PNB
then transferred to NASUDECO all its rights under the Redemption Agreement. The
corporate fiction was not used to defeat public convenience, justify a wrong, protect fraud or
defend crime. lifting of the corporate veil would result in manifest injustice.

The merger, however, does not become effective upon the mere agreement of the
constituent corporations. Since a merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and creditors, there must be an express
provision of law authorizing them. For a valid merger or consolidation, the approval by the
Securities and Exchange Commission (SEC) of the articles of merger or consolidation is
required. These articles must likewise be duly approved by a majority of the respective
stockholders of the constituent corporations. In the case at bar, the court held that there is no
merger or consolidation with respect to PASUMIL and PNB. The procedure prescribed under
Title IX of the Corporation Code was not followed.

Page 6 of 93
AZCOR MANUFACTURING INC., FILIPINAS PASO
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC)
G.R. No. 117963
February 11, 1999

FACTS:

Candido Capluso has been working for petitioner for more than 12 years as a ceramics
worker. On February 1991, Capulso requested to go on sick leave, it appearing that his illness
was directly caused by his occupation. Upon recovering, Capulso was not allowed to resume
work and was not reinstated after having tried five times. He filed a complaint for
constructive illegal dismissal and illegal deduction against AZCOR and Arturo Zuluaga.
AZCOR moved to dismiss the complaint alleging that no employer- employee
relationship existed. Petitioner further added that Capulso became an employee of Fil Paso on
March 1990 but voluntarily resigned after a year as evidenced by a letter of resignation
allegedly tendered by Capulso.
The Labor Arbiter dismissed the complaint for lack of merit and ordered AZCOR to
refund the deducted salaries. On Appeal, the NLRC ruled that the Contract of Employment
stated that the work to be done by Capulso was with Fil Paso and added the fact that the latter
denied having executed and signed the said resignation letters. Pending the trial of AZCORs
petition for Certiorari, Capulso succumbed to asthma and heart disease.

ISSUE:

Whether the petitioners are jointly liable for backwages in favor of the heirs being
separate and distinct entities.

RULING:

YES.

Capulso was led into believing that while he was working with Filipinas Paso, his real
employer was AZCOR. Petitioners never dealt with him openly and in good faith, nor was he
informed of the developments within the company, i.e., his alleged transfer to Filipinas Paso
and the closure of AZCOR's manufacturing operations beginning 1 March 1990. AZCOR
manifested for the first time before the Court that it had already ceased its business
operations. Understandably, Capulso sued AZCOR alone and was constrained to implead
Filipinas Paso as additional respondent only when it became apparent that the latter also
appeared to be his employer.
In the case, the corporate fiction was used as a means to perpetrate a social injustice or
as a vehicle to evade obligations or confuse the legitimate issues. Such corporate fiction
would be discarded and the two (2) corporations would be merged as one, the first being
merely considered as the instrumentality, agency, conduit or adjunct of the other.

Page 7 of 93
EDUARDO CLAPAROLS
vs.
COURT OF INDUSTRIAL RELATIONS
G.R. No. L-30822
July 31, 1975

FACTS:

On Aug. 6, 1957, a complaint for unfair labor practice was filed by the Allied Workers
Association and Demetrio Garlitos, et. Al against Claparols Steel and Nail Plant (Claparols).
On September 16, 1963, the Court of Industrial Relations (CIR) ruled declared Claparols
guilty of union busting and illegal dismissal due to participation of respondents in union
activities. The CIR ordered the reinstatement and payment of back wages. On January 15,
1965, the CIR Chief Examiner Submitted his report containing three computations, to wit:The
first computation covers the period February 1, 1957 to October 31, 1964. The second is up to
and including December 7, 1962, when the corporation stopped operations, while the third is
only up to June 30, 1957 when the Claparols Steel and Nail Plant ceased to operate.

Records show that Claparols was already dissolved on June 30, 1957; and Claparols
Steel Corporation succeeded it on July 1, 1957. The latter also eventually stopped operation
on Dec. 7, 1962. Petitioners filed an opposition contending that it could not personally
reinstate respondent workers alleging that under the circumstances presently engulfing the
company, and assuming the workers are entitled to backwages, it was only limited to 3
months since Claparols Steel and Nail Plant stopped operations in 1962.

ISSUE:

Whether or not Claparols Steel and Nail Plant was one the same with Claparols Steel
Corporation?

FACTS:

Respondent Court's findings that indeed the Claparols Steel and Nail Plant, which
ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation
effective the next day, July 1, 1957 up to December 7, 1962, when the latter finally ceased to
operate, were not disputed by petitioners. It is very clear that the latter corporation was a
continuation and successor of the first entity, and its emergence was skillfully timed to avoid
the financial liability that already attached to its predecessor, the Claparols Steel and Nail
Plant. Both predecessors and successor were owned and controlled by the petitioner Eduardo
Claparols and there was no break in the succession and continuity of the same business. This
"avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares
of stocks of the Claparols Steel Corporation (the second corporation) was owned by
respondent (herein petitioner) Claparols himself, and all the assets of the dissolved Claparols
Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation.

Page 8 of 93
COMMISSIONER OF INTERNAL REVENUE
vs.
NORTON and HARRISON COMPANY
G.R. No. L-17618
August 31, 1964

FACTS:

Norton and Harrison is a corporation organized to buy and sell at wholesale and retail
all kinds of goods and merchandise. Jackbilt is also a corporation organized on for producing
concrete blocks. On 1948, the corporations entered into an agreement whereby Norton was
made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt.
On 1949, Norton purchased all the outstanding shares of stock of Jackbilt. This prompted the
CIR to investigate and eventually asses Norton and Harrison for deficiency sales tax and
surcharges.

ISSUE:

Whether Norton and Harrison is liable for the deficiency sales tax and surcharges.

RULING:

YES. The Court ruled that Norton and Jackbilt should be considered as one. Jackbilt's
outstanding stocks, board of directors, finance of operations, employees, and compensation
are all controlled by Norton and Harrison. Jackbilt is merely an adjunct, business conduit or
alter ego, of Norton and Harrison and that the fiction of corporate entities, separate and
distinct from each, should be disregarded. This is a case where the doctrine of piercing the
veil of corporate fiction, should be made to apply.
By being separate entities, the corporations would have to pay lesser income tax. The
combined taxable Norton-Jackbilt income would subject Norton to a higher tax.

Page 9 of 93
CONCEPT BUILDERS
vs.
NLRC
G.R. NO. 108734
May 29, 1996

FACTS:

Private respondents were served individual written notices of termination of


employment by petitioner for the reason that their contracts of employment had expired and
the project in which they were hired had been completed. Public respondent found it to be, the
fact, however, that at the time of the termination of private respondent's employment, the
project in which they were hired had not yet been finished and completed. Petitioner had to
engage the services of sub-contractors whose workers performed the functions of private
respondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor
practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay
against petitioner to which the Labor Arbiter and the NLRC ruled in their favor. However, the
sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner
through the security guard on duty but the service was refused on the ground that petitioner no
longer occupied the premises.

Subsequently, private respondents filed a "Motion for Issuance of a Break-Open


Order," alleging that HPPI and petitioner corporation were owned by the same
incorporator/stockholders. They also alleged that petitioner temporarily suspended its
business operations in order to evade its legal obligations to them and that private respondents
were willing to post an indemnity bond to answer for any damages which petitioner and HPPI
may suffer because of the issuance of the break-open order.

HPPI filed an Opposition to private respondents' motion for issuance of a break-open


order, contending that HPPI is a corporation which is separate and distinct from petitioner.
HPPI also alleged that the two corporations are engaged in two different kinds of
businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in
construction.

ISSUE:

Whether the doctrine of piercing the corporate veil should be applied to the petitioner
for its creation of HPPI in order to evade its liability to private respondents?

HELD:

Yes.

Page 10 of 93
In this case, the NLRC noted that, while petitioner claimed that it ceased its business
operations on April 29, 1986, it filed an Information Sheet with the SEC on May 15, 1987,
stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other
hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet
stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.

Furthermore, both information sheets were filed by the same Virgilio O. Casio as the
corporate secretary of both corporations. It would also not be amiss to note that both
corporations had the same president, the same board of directors, the same corporate officers,
and substantially the same subscribers.

From the foregoing, it appears that, among other things, the respondent (herein
petitioner) and the third-party claimant shared the same address and/or premises. Under this
circumstances, it cannot be said that the property levied upon by the sheriff were not of
respondents.

Clearly, petitioner ceased its business operations in order to evade the payment to
private respondents of back wages and to bar their reinstatement to their former positions.
HPPI is obviously a business conduit of Petitioner Corporation and its emergence was
skillfully orchestrated to avoid the financial liability that already attached to Petitioner
Corporation.

Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary


liability for damages, the corporation may not be heard to say that it has a personality separate
and distinct from the other corporation. The piercing of the corporate veil comes into play.

Page 11 of 93
COMPLEX ELECTRONICS CORPORATION
vs.
NLRC
G.R. No. 122136
July 19, 1999

FACTS:

Due to losses on production of the petitioner, it was constrained to cease operations. In


the evening of April 6, 1992, the machinery, equipment and materials being used for
production at Complex were pulled-out from the company premises and transferred to the
premises of Ionics Circuit, Inc. (Ionics) at Cabuyao, Laguna. The following day, a total
closure of company operation was effected at Complex.

A complaint was, thereafter, filed with the Labor Arbitration Branch of the NLRC for
unfair labor practice, illegal closure/illegal lockout, money claims for vacation leave, sick
leave, unpaid wages, 13th month pay, damages and attorneys fees. The Union alleged that the
pull-out of the machinery, equipment and materials from the company premises, which
resulted to the sudden closure of the company was in violation of Section 3 and 8, Rule XIII,
Book V of the Labor Code of the Philippines and the existing CBA. Ionics was impleaded as a
party defendant because the officers and management personnel of Complex were also
holding office at Ionics with Lawrence Qua as the President of both companies.

The Union anchors its position on the fact that Lawrence Qua is both the president of
Complex and Ionics and that both companies have the same set of Board of Directors. It
claims that business has not ceased at Complex but was merely transferred to Ionics, a
runaway shop. To prove that Ionics was just a runaway shop, petitioner asserts that out of the
80,000 shares comprising the increased capital stock of Ionics, it was Complex that owns
majority of said shares with P1,200,000.00 as its capital subscription and P448,000.00 as its
paid up investment, compared to P800,000.00 subscription andP324,560.00 paid-up owing to
the other stockholders, combined. Thus, according to the Union, there is a clear ground to
pierce the veil of corporate fiction.

ISSSUE:

Whether or not Ionics is merely a runaway shop?

HELD:

NO.

Ionics was not set up merely for the purpose of transferring the business of Complex.
At the time the labor dispute arose at Complex, Ionics was already existing as an independent
company. As earlier mentioned, it has been in existence since July 5, 1984 (8 years prior to

Page 12 of 93
the dispute). It cannot, therefore, be said that the temporary closure in Complex and its
subsequent transfer of business to Ionics was for anti-union purposes. The Union failed to
show that the primary reason for the closure of the establishment was due to the union
activities of the employees.

The mere fact that one or more corporations are owned or controlled by the same or
single stockholder is not a sufficient ground for disregarding separate corporate personalities.
Mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personality.

At first glance after reading the decision a quo, it would seem that the closure of
respondents operation is not justified. However, a deeper examination of the records along
with the evidence, would show that the closure, although it was done abruptly as there was no
compliance with the 30-day prior notice requirement, said closure was not intended to
circumvent the provisions of the Labor Code on termination of employment. The closure of
operation by Complex on April 7, 1992 was not without valid reasons. Customers of
respondent alarmed by the pending labor dispute and the imminent strike to be foisted by the
union, as shown by their strike vote, directed respondent Complex to pull-out its equipment,
machinery and materials to other safe bonded warehouse. Respondent being mere consignees
of the equipment, machinery and materials were without any recourse but to oblige the
customers directive. The pull-out was effected on April 6, 1992. We can see here that
Complexs action, standing alone, will not result in illegal closure that would cause the illegal
dismissal of the complainant workers. The determination to cease operation is a prerogative of
management that is usually not interfered with by the State as no employer can be required to
continue operating at a loss simply to maintain the workers in employment. That would be
taking of property without due process of law which the employer has the right to resist.

Page 13 of 93
ROSAURA P. CORDON
vs.
JESUS BALICANTA
A.C. No. 2797
October 4, 2002

FACTS:

Rosaura Cordon and her daughter Rosemarie inherited 21 parcels of land from her
deceased husband. Sometime in the early part of 1981, respondent Atty. Jesus Balicanta
enticed complainant to organize a corporation that would develop their 21 parcels of land into
a high-scale commercial complex with a beautiful penthouse for complainant. Relying on
these apparently sincere proposals, complainant and her daughter assigned 19 parcels of land
to Rosaura Enterprises, Incorporated, a newly-formed and duly registered corporation in
which they assumed majority ownership. The subject parcels of land were then registered in
the name of the corporation. Thereafter, respondent single-handedly ran the affairs of the
corporation in his capacity as Chairman of the Board, President, General Manager and
Treasurer. The respondent also made complainant sign a document which turned out to be a
voting trust agreement. Respondent likewise succeeded in making complainant sign a special
power of attorney to sell and mortgage some of the parcels of land. It was later discovered
that respondent transferred the titles of the properties to a certain Tion Suy Ong who became
the new registered owner thereof.

In 1981, respondent, using a spurious board resolution, contracted a loan from the
Land Bank of the Philippines (LBP) using as collateral 9 of the real properties that the
complainant and her daughter contributed to the corporation which was used to construct the
Baliwasan Commercial Center (BCC). Later on, it was discovered that the structure was made
of poor materials which could not have cost the corporation anything close to the amount of
the loan secured. The LBP foreclosed on the 9 mortgaged properties due to non-payment of
the loan while the respondent started to earn revenues from the rentals of BCCs tenants since
it commenced its operations. The respondent also sold the corporations right to redeem the
mortgaged properties to a certain Hadji Mahmud Jammang through a fake board resolution
which clothed himself with the authority to do so. Complainant and her daughter, the majority
stockholders, were never informed of the alleged meeting held on that date.

Respondent demolished petitioners ancestral home and sold the lot to Tion Suy Ong,
using another spurious board resolution. The resolution contained the minutes of an alleged
organizational meeting of the directors of the corporation and was signed by Alexander Wee,
Angel Fernando, Erwin Fernando and Gabriel Solivar. Complainant and her daughter did not
know how these persons became stockholders and directors of the corporation.

Respondent never accounted for the proceeds of the said transfers or sale.

ISSUES:

Page 14 of 93
1. Whether the doctrine of piercing the veil of corporate fiction should be applied

2. Whether respondent can take refuge in the contested voting trust agreement to
justify a quorum for a valid meeting for the discussion and approval of the
transactions.

HELD:

1. The Court held that respondent cannot invoke the separate personality of the
corporation to absolve him from exercising these duties over the properties turned over to him
by complainant. He blatantly used the corporate veil to defeat his fiduciary obligation to his
client, the complainant. Toleration of such fraudulent conduct was never the reason for the
creation of said corporate fiction.

The massive fraud perpetrated by respondent on the complainant left the Court no
choice but to set aside the veil of corporate entity. Therefore, the properties registered in the
name of the corporation should still be considered as properties of complainant and her
daughter. The respondent merely held them in trust for complainant and her daughter. The
properties conveyed fraudulently and/or without the requisite authority should be deemed as
never to have been transferred, sold or mortgaged at all. Respondent shall be liable, in his
personal capacity, to third parties who may have contracted with him in good faith.

2. Respondent cannot take refuge in the contested voting trust agreement supposedly
executed by complainant and her daughter for the reason that it authorized respondent to
represent complainant for only 266 shares. The complainant and her daughter own 1,711 out
of 1,750 shares of the outstanding capital stock of the corporation, based on the Articles of
Incorporation and deeds of transfer of the properties. But respondents evidence showed that
complainant had only 266 shares of stock in the corporation while her daughter had none,
notwithstanding the fact that there was nothing to indicate that complainant and her daughter
ever conveyed their shares to others. Respondent likewise did not explain why he did not
return the certificates representing the 266 shares after the lapse of 5 years from the time the
voting trust certificate was executed in 1981

The mortgage of 9 of the properties of the corporation previously belonging to


complainant and her daughter was not ratified by the stockholders allegedly owning two-
thirds or 67% of the outstanding capital stock; in fact only three stockholders owning 111 out
of 1,750 outstanding shares or 6.3% assented thereto. The alleged authorization granting him
the power to contract the LBP loan was also not approved by the required minimum of two-
thirds of the outstanding capital stock. In all these transactions, complainant and her daughter
who both owned 1,711 out of the 1,750 outstanding shares of the corporation or 97.7% never
had any participation. Neither were they informed thereof. Clearly, there was no quorum for a
valid meeting for the discussion and approval of these transactions.

Page 15 of 93
DELPHER TRADES CORPORATION and DELPHIN PACHECO,
vs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC.,
G.R. No. L-69259
January 26, 1988

FACTS:

Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square
meters of real estate properties. The said co-owners entered into a lease agreement with
Construction Components International Inc. with a first option to buy should the seller sells
the property . Subsequently, the lessee Construction Components International, Inc. assigned
its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc.
with the signed conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco.

Delfin and Pelagia Pacheco conveyed the leased property to Delpher Trades
Corporation through a deed of exchange for 2,500 shares of stock of defendant corporation
with a total value of P1,500,000.00.

On the ground that it was not given the first option to buy the leased property pursuant
to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an
amended complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar to
those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco and
Delphin Pacheco.

The court of first instance of Bulacan rendered judgment declaring the valid existence
of the plaintiffs preferential right to acquire the subject property (right of first refusal) and
ordering the defendants and all persons deriving rights there from to convey the said property
to plaintiff who may offer to acquire the same at the rate of P14.00 per square meter, more or
less, for Lot 1095 whose area is 27,169 square meters only. And was affirmed by the appellate
court.

ISSUE:

Whether or not Private respondent is allowed to exercise its right of first refusal even
if there is no "sale" or transfer of actual ownership interests by petitioners to third parties?

HELD:

After incorporation, one becomes a stockholder of a corporation by subscription or by


purchasing stock directly from the corporation or from individual owners thereof. In the case
at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par
value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became
stockholders of the corporation by subscription "The essence of the stock subscription is an

Page 16 of 93
agreement to take and pay for original unissued shares of a corporation, formed or to be
formed." It is significant that the Pachecos took no par value shares in exchange for their
properties.

A no-par value share does not purport to represent any stated proportionate interest in
the capital stock measured by value, but only an aliquot part of the whole number of such
shares of the issuing corporation. The holder of no-par shares may see from the certificate
itself that he is only an aliquot sharer in the assets of the corporation. But this character of
proportionate interest is not hidden beneath a false appearance of a given sum in money, as in
the case of par value shares. The capital stock of a corporation issuing only no-par value
shares is not set forth by a stated amount of money, but instead is expressed to be divided into
a stated number of shares, such as, 1,000 shares. This indicates that a shareholder of 100 such
shares is an aliquot sharer in the assets of the corporation, no matter what value they may
have, to the extent of 100/1,000 or 1/10. Thus, by removing the par value of shares, the
attention of persons interested in the financial condition of a corporation is focused upon the
value of assets and the amount of its debts.

It is to be stressed that by their ownership of the 2,500 no par shares of stock, the
Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the
other stockholders, who also belong to the same family group. In effect, the Delpher Trades
Corporation is a business conduit of the Pachecos. What they really did was to invest their
properties and change the nature of their ownership from unincorporated to incorporated form
by organizing Delpher Trades Corporation to take control of their properties and at the same
time save on inheritance taxes.

The "Deed of Exchange" of property between the Pachecos and Delpher Trades
Corporation cannot be considered a contract of sale. There was no transfer of actual
ownership interests by the Pachecos to a third party. The Pacheco family merely changed their
ownership from one form to another. The ownership remained in the same hands. Hence, the
private respondent has no basis for its claim of a light of first refusal under the lease contract.

Page 17 of 93
FRANCISCO V. DEL ROSARIO
vs.
NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 85416
July 24, 1990

FACTS:

Private respondent filed a complaint with the POEA on June 4, 1985. The last renewal
of Philsa's license expired on October 12, 1985. Then the POEA dismissed private
respondent's complaint on February 4, 1986. Philsa was delisted for inactivity on August 15,
1986. The dismissal of the complaint was appealed to the NLRC and it was only on April 30,
1987 that the judgment awarding differentials and benefits to private respondent was
rendered. NLRC ruled that the corporate veil of Philsa should be disregarded because Philsa
Construction & Trading and Philsa International Placement & Services Corp., were composed
of practically the same set of incorporators/stockholders.

ISSUE:
Whether or not the corporate veil should be disregarded?

HELD:

No.

At the time Philsa allowed its license to lapse in 1985 and even at the time it was
delisted in 1986, there was yet no judgment in favor of private respondent. An intent to evade
payment of his claims cannot therefore be implied from the expiration of Philsa's license and
its delisting. Neither will the organization of Philsa International Placement and Services
Corp. and its registration with the POEA as a private employment agency imply fraud since it
was organized and registered in 1981, several years before private respondent filed his
complaint with the POEA in 1985. The creation of the second corporation could not therefore
have been in anticipation of private respondent's money claims and the consequent adverse
judgment against Philsa. Likewise, substantial identity of the incorporators of the two
corporations does not necessarily imply fraud.

Page 18 of 93
FIRST PHILIPPINE INTERNATIONAL BANK
vs.
COURT OF APPEALS
G.R. No. 115849
January 24, 1996

FACTS:

First Philippine International Bank acquired a 101 hectare piece of land from BYME
Investment and Development Company. The herein substituted respondents Demetrio
Demetria and Jose Janolo manifested their intention to buy the land from herein petitioner.
Thus, through the help and advice of BYME, respondents sent a letter to FPIB offering to buy
the land for P3.5 million.

FPIB made a counter-offer saying that they will not sell the land in less than P5.5
million. In response, Jose Janolo sent a letter saying that they are willing to pay P4.25 million
in cash for the said land. Thereafter, a meeting took place. Rivera as well as Fajardo, the
BYME lawyer, attended the meeting. Two days later, plaintiff Janolo sent to the bank saying
that it has accepted the offer presented during the said meeting and that they will be paying
P5.5 million cash for the purchase.

However, after three more demand letters and tender of payments for the P5.5 million
selling price, the sale was not made. FPIB rejected the payments made. In a reply to one of the
letters, Nida Encarnacion, as acting conservator as appointed by the BSP, repudiated the
validity of the transaction claiming that Rivera has no authority to transact with herein
respondents. Thus, making the sale illegal and null and void.

This prompted the respondents to file an action for specific performance and damages
for the completion of the sale. FPIB reiterated that the sale was null and void due to lack of
authority and that there was no meeting of the minds as to the price.

The RTC ruled in favour of herein respondents. The case was further appealed with
the CA, which upheld the former decision modifying the damages awarded.

Meanwhile, pending the CA appeal, Henry Co, a major stockholder of 80%, with
several other stockholders filed with the RTC a derivative suit against respondents praying
that the latter stop the execution of the sale. Respondents, now substituted by Carlos Ejercito
claimed that the suit filed by Henry Co et. al. constituted forum shopping, and that the same
was barred by litis pendencia, hence, must be dismissed.

ISSUES:

Whether the veil of corporate fiction should be pierced?

Page 19 of 93
HELD:

NO. Petitioner tried to seek refuge in the corporate fiction that the personality of the Bank is
separate and distinct from its shareholders. But the rulings of this Court are consistent: When
the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the achievement or perfection
of a monopoly or generally the perpetration of knavery or crime, the veil with which the law
covers and isolates the corporation from the members or stockholders who compose it will be
lifted to allow for its consideration merely as an aggregation of individuals.

In addition to the many cases where the corporate fiction has been disregarded, we now add
the instant case, and declare herewith that the corporate veil cannot be used to shield an
otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether
suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed
to trifle with court processes, particularly where, as in this case, the corporation itself has not
been remiss in vigorously 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 their shareholders as fronts to circumvent the stringent rules against forum shopping.
Ultimately, what is truly important to consider in determining whether forum-shopping exists
or not is the vexation caused the courts and parties-litigant by a party who asks different
courts and/or administrative agencies to rule on the same or related causes and/or to grant the
same or substantially the same reliefs, in the process creating the possibility of conflicting
decisions being rendered by the different for a upon the same issue. In this case, this is exactly
the problem: a decision recognizing the perfection and directing the enforcement of the
contract of sale will directly conflict with a possible decision in the Second Case barring the
parties from enforcing or implementing the said sale. Indeed, a final decision in one would
constitute res judicata in the other.

Page 20 of 93
Francisco Motors Corporation
vs.
Court of Appeals
G.R. No. 100812
June 25, 1999

FACTS:

Francisco Motors filed a complaint against Spouses Gregorio and Librada Manuel to
collect the balance of the jeep body purchased by the Manuels from petitioner, and the unpaid
balance for the cost of repair of the vehicle.

Respondent interpose a counterclaim of an unpaid legal services by Gregorio which


was not paid by the incorporators, directors and officers of petitioner corporation. He alleged
as an affirmative defense that, while he was petitioners Assistant Legal Officer, he represented
members of the Francisco family in the intestate estate proceedings of the late Benita
Trinidad. However, even after the termination of the proceedings, his services were not paid.
Said family members, he said, were also incorporators, directors and officers of petitioner.
Hence to counter petitioners collection suit, he filed a permissive counterclaim for the unpaid
attorneys fees.

As to the issue of attorneys fees, corporation argued that being a corporation, it


should not be held liable for the fees owned by its incorporators, directors and officers in their
personal capacity as heirs of Benita Trinidad. The personality of corporation is separate and
distinct from its officers.

ISSUE:

Whether there is valid ground to pierce the veil of the corporate fiction?

HELD:

No. Piercing the veil of corporate fiction has no application in this case. In the present
case, it appeared that the corporation is being held liable for the responsibilities of individuals
or persons. It is the petitioner as a corporation which is being ordered to answer for the
personal liability of certain individual directors, officers and incorporators concerned. Hence,
it appears to us that the doctrine has been turned upside down because of its erroneous
invocation. Note that according to private respondent Gregorio Manuel his services were
solicited as counsel for members of the Francisco family to represent them in the intestate
proceedings over Benita Trinidads estate. These estate proceedings did not involve any
business of petitioner.

Page 21 of 93
Manuels move to recover unpaid legal fees through a counterclaim against Francisco
Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body
could only result from an obvious misapprehension that petitioners corporate assets could be
used to answer for the liabilities of its individual directors, officers, and incorporators. Such
result if permitted could easily prejudice the corporation, its own creditors, and even other
stockholders; hence, clearly inequitous to petitioner.

Furthermore, considering the nature of the legal services involved, whatever


obligation said incorporators, directors and officers of the corporation had incurred, it was
incurred in their personal capacity. When directors and officers of a corporation are unable to
compensate a party for a personal obligation, it is far-fetched to allege that the corporation is
perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its
corporate veil.

Page 22 of 93
SOL LAGUIO
vs.
NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 108936
October 4, 1996

FACTS:
Almost a year of operation, April posted a memorandum within its premises and
circulated a copy of the same among its employees informing them of its dire financial
condition. To avert further business reverses, April decided to shorten its corporate term up
to February 28, 1990, submitted a notice of dissolution to the Securities and Exchange
Commission and published the same in a newspaper of general circulation.
In view of Aprils cessation of operations, petitioners who initially composed of
seventy-seven employees below filed a complaint for illegal shutdown/retrenchment/dismissal
and unfair labor practice. Petitioners amended their complaint to implead private respondent
private respondent Well World Toys, Inc. (Well World), a corporation also engaged in the
manufacture of stuffed toys for export with principal office located at Las Pias, Manila.
Petitioners basically alleged that they were original probationary employees of Well
World but were later laid off in 1989 for starting to organize themselves into a union. On
February 2, 1990, and while under the employ of April, petitioners conducted a certification
election where their union, Alyansang Likha ng mga Anak ng Bayan (ALAB), won as the
exclusive bargaining agent for the workers. Petitioners thereafter submitted a Collective
Bargaining Agreement proposal which April rejected in view of its cessation of
operation. The closure, petitioners declared, is Aprils clever ploy to defeat their right to self-
organization. Petitioners further alleged that the original incorporators and principal officers
of April were likewise the original incorporators of Well World, thus both corporations
should be treated as one corporation liable for their claims. Petitioners also insist that the two
corporations are being managed by Mr. Jean Li Wang [and that their articles of incorporation,
general information sheets and certificates of increase of capital stock were notarized by the
same Notary Public.
ISSUE:
Whether or not April and Well World Corporation are one and the same corporation?
RULING:
No. The two corporations have two different set of officers managing their respective
affairs in two separate offices. It is basic that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it as well as from that
of any other legal entity to which it may be related. Mere substantial identity of the

Page 23 of 93
incorporators of the two corporations does not necessarily imply fraud, nor warrant the
piercing of the veil of corporation fiction.
In the absence of clear and convincing evidence that April and Well Worlds corporate
personalities were used to perpetuate fraud, or circumvent the law said corporations were
rightly treated as distinct and separate from each other.
What clearly appears is that the two corporations have two different set of officers
managing their respective affairs in two separate offices.
Although it appears that the two of the original incorporators and stockholders of April
Toy, Inc. were incorporators and minority stockholders of Well-World Toy, Inc., it does not
mean that the two (2) corporations are adjunct and conduit. There is not express provision
under the Corporation law prohibiting stockholders or incorporators of a corporation to be a
stockholder or incorporator of another corporation.
The fiction that a corporation was a distinct and separate personality shall not be used as
a subterfuge to commit injustice and circumvent the law does not apply in the present
case. There is no conclusive evidence that respondent April Toy, Inc. was established and later
on closed to defeat the rights of the workers of Well-World Toy, Inc. which would otherwise
support the charge of unfair labor practice. Hence, we find that the two (2) corporations are
separate and distinct entities.

Page 24 of 93
RUFINA LUY LIM
vs.
COURT OF APPEALS
G.R. No. 124715
January 24, 2000

FACTS:

Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is
the subject of probate proceedings. The respondent herein is the owner of the properties
subject of this. Said properties were included in the inventory of estate late Pastor Lim. Thus
he respondents moved for the exclusion of said properties which was denied by the trial court.
Petitioner contended upon filing an amended petition that the properties were actually owned
by Pastor Lim and the same were registered under his name, hence they should be included in
the inventory of his estate, and that during his lifetime, he organized and wholly-owned the
five corporations, which are the private respondents in the instant case.

ISSUE:

Whether or not the doctrine of piercing the corporate veil is applicable

HELD:

No. The corporate mask may be lifted and the corporate veil may be pierced when a
corporation is just but the alter ego of a person or of another corporation. Where 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.

In this case, there is no showing that the elements are present. The real properties
included in the inventory of the estate of the late Pastor Y. Lim are in the possession of and
are registered in the name of private respondent corporations, which under the law possess a
personality separate and distinct from their stockholders, and in the absence of any cogency to
shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of
private respondents should stand undisturbed. Even if its true that it was Pastor Lim who
organized the corporation. Mere ownership by a single stockholder or by another corporation
of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities. Moreover, to disregard the
separate juridical personality of a corporation, the wrong-doing must be clearly and
convincingly established. It cannot be presumed. Petitioners in this case failed to establish any
valid reason to pierce the veil of a corporate fiction. Thus, the petition is dismissed.

Page 25 of 93
MATUGUINA INTEGRATED WOOD PRODUCTS, INC.
vs.
The HON. COURT OF APPEALS
G.R. No. 98310
October 24, 1996

FACTS:

In 1973, license was issued to Milagros Matuguina to operate logging businesses


under her group Matuguina Logging Enterprises. MIWPI was established in 1974 with 7
stockholders. Milagros Matuguina became the majority stockholder later on. Milagros later
petitioned to have MLE be transferred to MIWPI. Pending approval of MLEs petition, Davao
Enterprises Corporation filed a complaint against MLE before the District Forester (Davao)
alleging that MLE has encroached upon the area allotted for DAVENCORs timber
concession. The Investigating Committee found MLE guilty as charged and had
recommended the Director to declare that MLE has done so. MLE appealed the case to the
Ministry of Natural Resources. During pendency, Milagrosa withdrew her shares from
MIWPI. Later, MNR Minister Ernesto Maceda found MLE guilty as charged. Pursuant to the
finding, DAVENCOR and Philip Co requested Maceda to order MLE and/or MIWPI to
comply with the ruling to pay the value in pesos of 2352.04 m3 worth of timbers. The
Minister then issued a writ of execution against MIWPI. MIWPI filed a petition for
prohibition before the Davao RTC. The RTC ruled in favor of MIWPI and has ordered to
enjoin the Minister from pursuing the execution of the writ. DAVENCOR appealed and the
CA reversed the ruling of the RTC. MIWPI averred that it is not a party to the original case
(as it was MLE that was sued a separate entity).

ISSUE:

Is it possible to pierce the veil of MIWPIs corporate existence, making it a mere


conduit or successor of MLE?

HELD:

No. It is settled that a corporation is clothed with a personality separate and distinct
from that of persons composing it. It may not generally be held liable for that of the persons
composing it. It may not be held liable for the personal indebtedness of its stockholders or
those of the entities connected with it. Conversely, a stockholder cannot be made to answer
for any of its financial obligations even if he should be its president. But when the juridical
personality of the corporation is used to defeat public convenience, justify wrong, protect
fraud or defend crime, the corporation shall be considered as a mere association of persons,
and its responsible officers and/or stockholders shall be individually liable For the same
reasons, a corporation shall be liable for the obligations of a stockholder or a corporation and

Page 26 of 93
its successor-in-interest shall be considered as one and the liability of the former attach to the
latter.
But for the separate juridical personality of a corporation to be disregarded, the wrongdoing
must be clearly and convincingly established. It cannot be presumed.

In the case at bar, there is, insufficient basis for the appellate courts ruling that
MIWPI is the same as Matuguina. The trial courts observation is enlightening.

In the first place the alleged control of plaintiff corporation was not evident in any
particular corporate acts of plaintiff corporation, wherein Maria Milagros Matuguina Logging
Enterprises using plaintiff corporation, executed acts or powers directly involving plaintiff
corporation. Neither was there any evidence of defendants, that Maria Milagros Matuguina
Logging Enterprises, using the facilities and resources of plaintiff corporation, involved itself
in transaction using both single proprietorship and plaintiff corporation in such particular line
of business undertakings.

Yet, granting as claimed by defendants, that in 1974 or in 1975, Maria Milagros


Matuguina became the controlling stockholder of plaintiff corporation, on account of the
change of name and transfer of management of PTL No. 30, this circumstance, does not of
itself prove that plaintiff corporation was the alter ego of Maria Milagros Matuguina Logging
Enterprise.
mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stocks of the corporation, is not itself a sufficient warrant for disregarding the fiction
of separate personality. It is recognized as lawful to obtain a corporation charter, even with a
single substantial stockholder, to engage in specific activity and such activity may co-exist
with other private activities of the stockholders. If the corporation is substantial one,
conducted lawfully; without fraud on another, its separate identity is to be respected.

More importantly, even if it is deemed that there was a valid change of name and
transfer of interest in the PTL No. 30, this only signifies a transfer of authority, from MLE to
MIWPI, to conduct logging operations in the area covered by PTL No. 30. It does not show
indubitable proof that MIWPI was a mere conduit or successor of Milagros Matuguina/MLE,
as far the latters liability for the encroachment upon DAVENCORs concession is concerned.

Page 27 of 93
MANILA HOTEL CORPORATION
VS.
NLRC
G.R. No. 120077
October 13, 2000

FACTS:

By virtue of a management agreement with the Palace Hotel (Wang Fu Company


Limited), MHICL trained the personnel and staff of the Palace Hotel at Beijing, China.

Marcelo Santos was directly hired by Palace Hotel, Beijing, Peoples Republic of
China. Santos agreed to the hotels job offer. Subsequently, Santos signed an amended
employment agreement with the Palace Hotel wherein the vice president of Manila Hotel
International Company Limited signed the contract under the word noted. In August 1989,
Palace Hotel notified Santos that he will be laid off due to business reverses brought about by
the political upheaval in China. In September 1989, the Palace Hotel terminated the
employment of Santos and paid all benefits due him.

In February 1990, Santos filed a complaint for illegal dismissal against Manila Hotel
Corporation (MHC) and Manila Hotel International, Ltd. (MHIL). The Palace Hotel was
impleaded but no summons were served upon it.

ISSUE:

Whether or not the doctrine of piercing the veil of corporate fiction is applicable

HELD:

No. MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital
stock. However, this is not enough to pierce the veil of corporate fiction between MHICL and
MHC. The tests in determining whether the corporate veil may be pierced are: First, the
defendant must have control or complete domination of the other corporation's finances,
policy and business practices with regard to the transaction attacked. There must be proof that
the other corporation had no separate mind, will or existence with respect the act complained
of. Second, control must be used by the defendant to commit fraud or wrong. Third, the
aforesaid control or breach of duty must be the proximate cause of the injury or loss
complained of. The absence of any of the elements prevents the piercing of the corporate veil.
In this case, we find no evidence to show that MHICL and MHC are one and the same entity.

Page 28 of 93
Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and
the same entity. The fact that the Palace Hotel is a member of the "Manila Hotel Group" is not
enough to pierce the corporate veil between MHICL and the Palace Hotel.

COMMISSIONER OF INTERNAL REVENUE


vs.
NORTON and HARRISON COMPANY
G.R. No. L-17618
August 31, 1964

FACTS:

Norton and Jackbilt entered into an agreement whereby Norton was made the sole and
exclusive distributor of concrete blocks manufactured by Jackbilt. Pursuant to this agreement,
whenever an order for concrete blocks was received by the Norton & Harrison Co. from a
customer, the order was transmitted to Jackbilt which delivered the merchandise direct to the
customer. Payment for the goods is, however, made to Norton, which in turn pays Jackbilt the
amount charged the customer less a certain amount, as its compensation or profit. It was under
this procedure that the sale of concrete blocks manufactured by Jackbilt was conducted until
May 1, 1953, when the agency agreement was terminated and a management agreement
between the parties was entered into. The management agreement provided that Norton would
sell concrete blocks for Jackbilt, for a fixed monthly fee of P2,000.00, which was later
increased to P5,000.00.

During the existence of the distribution or agency agreement, Norton & Harrison acquired by
purchase all the outstanding shares of stock of Jackbilt. Apparently, due to this transaction, the
Commissioner of Internal Revenue, after conducting an investigation, assessed the respondent
Norton & Harrison for deficiency sales tax and surcharges in the amount of P32,662.90,
making as basis thereof the sales of Norton to the Public.

The Commissioner of Internal Revenue contends that since Jackbilt was owned and
controlled by Norton & Harrison, the corporate personality of the former (Jackbilt) should be
disregarded for sales tax purposes, and the sale of Jackbilt blocks by petitioner to the public
must be considered as the original sales from which the sales tax should be computed. The
Norton & Harrison Company contended otherwise that is, the transaction subject to tax is
the sale from Jackbilt to Norton.

ISSUE:
Whether the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co.,
merged the two corporations into a single corporation;

HELD:

Page 29 of 93
It has been settled that the ownership of all the stocks of a corporation by another corporation
does not necessarily breed an identity of corporate interest between the two companies and be
considered as a sufficient ground for disregarding the distinct personalities However, in the
case at bar, there are sufficient grounds to support the theory that the separate identities of the
two companies should be disregarded.
(a) Norton and Harrison owned all the outstanding stocks of Jackbilt;

(b) Norton constituted Jackbilt's board of directors in such a way as to enable it to actually
direct and manage the other's affairs by making the same officers of the board for both
companies;

(c) Norton financed the operations of the Jackbilt, and this is shown by the fact that the loans
obtained from the RFC and Bank of America were used in the expansion program of Jackbilt,
to pay advances for the purchase of equipment, materials rations and salaries of employees of
Jackbilt and other sundry expenses;

(d) Norton treats Jackbilt employees as its own;

(e) Compensation given to board members of Jackbilt, indicate that Jackbilt is merely a
department of Norton.

Page 30 of 93
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.
VS .
COURT OF APPEALS
GR No. 129459
September 29, 1998

FACTS:

Plaintiff-appellant San Juan structural and steel fabricators Inc.s alleged that on
February 14, 1989, plaintiff-appellant entered into an agreement with defendant-appellee
Motorich Sales Corporation for the transfer to it of a parcel of land. However, despite
repeated demands and in utter disregard of its commitments had refused to execute the
transfer of rights/deed of assignment which is necessary to transfer the certificate of title.

On April 6, 1989 defendant ACL Development Corporation and Motorich Sales


Corporation entered into a deed of absolute sale whereby the former transferred to the latter
the subject property; that by reason of said transfer; the registry of deeds of Quezon City
issued a new title in the name of Motorich Sales Corporation.

That as a result of defendants-appellees Nenita and Motorichs bad faith in refusing to


execute a formal transfer of rights/deed of assignment, plaintiff-appellant suffered moral and
nominal damages which may be assessed against defendant-appellees in the sum of P500,000;
that as a result of an unjustified and unwarranted failure to execute the required transfer or
formal deed of sale in favor of plaintiff-appellant, defendant-appellees suffered damages.

ISSUES:

Whether or not the doctrine of piercing the veil of corporate entity is applicable?

HELD:

As a general rule, the acts of corporate officers within the scope of their authority are
binding on the corporation. But when these officers exceed their authority, their actions,
cannot bind the corporation, unless it has ratified such acts as is estopped from disclaiming
them. Motorich had never given a written authorization to respondent Gruenbeg to sell its
parcel of land, the agreement entered into by the latter with petitioner is void under Article
1874 of the Civil Code. Being inexistent and void from the beginning, said contract cannot be
ratified.

Page 31 of 93
In the present case, however, the court finds no reason to pierce the corporate veil of
respondent Motorich. Petitioner utterly failed to establish the said corporation was formed, or
that it is operated for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity
at the expense of third persons like petitioner.
TAN BOON BEE & CO., INC.,
vs.
THE HONORABLE HILARION U. JARENCIO
G.R. No. L-41337
June 30, 1988

FACTS:

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

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

ISSUE:

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

HELD:

Yes. PADCO, as its name suggests, is a drug company not engaged in the printing
business. So it is dubious that it really owns the said printing machine regardless of PADCOs
title over it. Further, the printing machine, as shown by evidence, has been in GPIs premises
even before the date when PADCO alleged that it acquired ownership thereof. Premises
considered, the veil of corporate fiction should be pierced; PADCO and GPI should be
considered as one. When a corporation is merely an adjunct, business conduit or alter ego of
another corporation the fiction of separate and distinct corporation entities should be
disregarded.

Page 32 of 93
TELEPHONE ENGINEERING & SERVICE COMPANY, INC.
vs.
WORKMEN'S COMPENSATION COMMISSION
G.R. No. L-28694
May 13, 1981

FACTS:

Petitioner Telephone Engineering & Services Company, Inc.,(TESCO) is a domestic


corporation engaged in the business of manufacturing telephone equipment, having a sister
company the Utilities Management Corporation (UMACOR) and they were both housed at
Sheridan Street, Mandaluyong, Rizal, the same under the management management of
(Executive Vice-President and General Manager) Jose Luis Santiago.

UMACOR on September 8, 1964 employed the late Pacifica L. Gatus as a purchasing


agent, and he was detailed with TESCO he contracted illness and although he retained to
work. He died on July 14, 1967 of "liver cirrhosis with malignant degeneration."

His widow, respondent Leonila S. Gatus, filed with the Compensation Section,
Quezon City Sub-Regional Office a Notice and Claim for Compensation alleging therein that
her deceased husband was an employee of TESCO, and that he died of liver cirrhosis. The
employer stated that it would not controvert the claim for compensation, and admitted that the
deceased employee contracted illness in regular occupation. On the basis of said report death
benefits in the amount of P5, 759.52 plus burial expenses of P200.00 in favor of the heirs of
Gatus was awarded by the Acting Referee against TESCO.

ISSUE:

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

HELD:
It is to be noted that only in this Petition that petitioner denied, for the first time, the
employer-employee relationship. In fact, in its letter to the Acting Referee, petitioner
represented and defended itself as the employer of the deceased, and nowhere did it allege
that it was not the employer. Petitioner even admitted that TESCO and UMACOR are sister
companies operating under one single management and housed in the same building.

Page 33 of 93
Although respect for the corporate personality as such, is the general rule, there are
exceptions. In appropriate cases, the veil of corporate fiction may be pierced as when the
same is made as a shield to confuse the legitimate issues. While, indeed, jurisdiction cannot be
conferred by acts or omission of the parties, TESCO'S denial at this stage that it is the
employer of the deceased is obviously an afterthought, a devise to defeat the law and evade its
obligations.
BUENAFLOR C. UMALI, et al
vs.
COURT OF APPEALS
G.R. No. 89561
September 13, 1990

FACTS:

DBP initiated a foreclosure sale over parcels of land owned by the Castillo family. To
raise funds to pay the loan, Santiago Rivera, nephew of Mauricia Meer, proposed the
conversion of the 4 parcels of land adjacent to the mortgaged property to which the Castillo
family accepted. Hence, a Memorandum of Agreement was executed by and between Slobec
Realty and Development, Inc., represented by its President Santiago Rivera and the Castillo
family.

Bormaheco, Inc. and Slobec Realty and Development, Inc. executed a Sales
Agreement over one unit of Caterpillar Tractor D-7. Slobec, through Rivera, executed in favor
of Bormaheco a Chattel Mortgage over the said equipment as security over the unpaid balance
of the sale. Mauricia and other family members executed a surety agreement whereby in case
of default in paying said tractor, the Insurance Corporation of the Philippines (ICP) shall pay
the balance. The surety bond agreement between Mauricia and ICP was secured by Mauricias
parcel of land.

Meanwhile, for violation of the terms and conditions of the Counter-Guaranty


Agreement the properties of the Castillos were foreclosed by ICP. Consequently, ICP
consolidated its ownership over the subject parcels of land through the requisite affidavit of
consolidation of ownership after failure to redeem for a year.

Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts Manufacturing
Co. (PM Parts) the four (4) parcels of land and by virtue of said conveyance, PM Parts
transferred unto itself the titles over the lots in dispute so that said parcels of land.

PM Parts, through its President, Mr. Modesto Cervantes, sent a letter dated August
9,1976 addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and her children to
vacate the subject property, who (Mrs. Castillo) in turn sent her reply expressing her refusal to
comply with his demands.

Page 34 of 93
The heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M. Castillo Umali
as the appointed administratrix of the properties in question filed an action for annulment of
title. They contended that all the aforementioned transactions starting with the Agreement of
Counter-Guaranty with Real Estate Mortgage Certificate of Sale and the Deeds of Authority
to Sell, Sale and the Affidavit of Consolidation of Ownership as well as the Deed of Sale are
void for being entered into in fraud and without the consent and approval of the Court of First
Instance of Quezon, before whom the administration proceedings has been pending.
ISSUE:

Whether or not the Doctrine of Piercing the veil of corporate entity should be used?

HELD:

The legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation. In the instant case, petitioners
do not seek to impose a claim against the individual members of the three corporations
involved; on the contrary, it is these corporations which desire to enforce an alleged right
against petitioners. Assuming that petitioners were indeed defrauded by private respondents in
the foreclosure of the mortgaged properties, this fact alone is not, under the circumstances,
sufficient to justify the piercing of the corporate fiction, since petitioners do not intend to hold
the officers and/or members of respondent corporations personally liable therefor. Petitioners
are merely seeking the declaration of the nullity of the foreclosure sale, which relief may be
obtained without having to disregard the aforesaid corporate fiction attaching to respondent
corporations. Secondly, petitioners failed to establish by clear and convincing evidence that
private respondents were purposely formed and operated, and thereafter transacted with
petitioners, with the sole intention of defrauding the latter.
The mere fact, therefore, that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities, absent sufficient
showing that the corporate entity was purposely used as a shield to defraud creditors and third
persons of their rights.

Page 35 of 93
VLASON ENTERPRISES CORPORATION
vs.
COURT OF APPEALS and DURAPROOF SERVICES
G.R. Nos. 121662-64
July 6, 1999

FACTS:

Poro poro, the local agent of Omega requested the PPA to unload its cargo and store it
at the PPA. The request was granted, but despite the approval the
Vessel was still boarded by customs personnel on suspicion that it was highjack and that its
cargo will be smuggled into the Philippines. The vessel was ordered zeized.

While the proceeding was on going, a strong typoons hit La Union and the vessel was
aground and abandoned as a result. Its authorized representative entered into a salvage
agreement with Duraproof.

The warrant of zeisure was lifted, but the customs commissioner declined to issue the
clearance. Thus the District Customs Collector ordered the forfeiture and sale of the vessel
and its cargo in favor of the Phil.

Duraproof filed an action to enforce its preferred salvors lein over the vessel.
Impleaded was the PPA, Customs Commissioner, District Collector and the Med line Phil.
Inc.

The complaint was subsequently amended to include herein petitioner. The complaint
however was served to the Secretary of Anglionto who is the presented of both VEC and VSI.
It appears, however, that the secretary of VSI, not VEC.

ISSUE:

Whether or not piercing the Veil Doctrine can be resorted to when serving summons?

RULING:

No.

Page 36 of 93
A corporation may be served summons through its agents or officers who under the
Rules are designated to accept service of process. A summons addressed to a corporation and
served on the secretary of its president binds that corporation. This is based on the rationale
that service must be made on a representative so integrated with the corporation sued, that it is
safe to assume that said representative had sufficient responsibility and discretion to realize
the importance of the legal papers served and to relay the same to the president or other
responsible officer of the corporation being sued. The secretary of the president satisfies this
criterion. This rule requires, however, that the secretary should be an employee of the
corporation sought to be summoned. Only in this manner can there be an assurance that the
secretary will "bring home to the corporation the notice of the filing of the action" against it.
In the present case, Bebero was the secretary of Angliongto, who was president of
both VSI and petitioner, but she was an employee of VSI, not of petitioner. The piercing of the
corporate veil cannot be resorted to when serving summons.
Doctrinally, a corporation is a legal entity distinct and separate from the members and
stockholders who compose it. However, when the corporate fiction is used as a means of
perpetrating a fraud, evading an existing obligation, circumventing a statute, achieving or
perfecting a monopoly or, in generally perpetrating a crime, the veil will be lifted to expose
the individuals composing it. None of the foregoing exceptions has been shown to exist in the
present case. Quite the contrary, the piercing of the corporate veil in this case will result in
manifest injustice. This we cannot allow.

Page 37 of 93
VILLA REY TRANSIT, INC.,
vs.
EUSEBIO E. FERRER
G.R. No. L-23893
October 29, 1968

FACTS:

Jose M. Villarama sold certificates of public convenience granted him by the Public
Service Commission (PSC), which authorized him to operate 32 units on various routes from
Pangasinan to Manila, and vice-versa to the Pangasinan Transportation Company, Inc.
(Pantranco) with the condition that Villarama "shall not for a period of 10 years from the date
of this sale, apply for any TPU service identical or competing with the buyer.

Barely 3 months thereafter, Villa Rey Transit, Inc. (Corporation) was organized,
wherein one of the incorporators is Natividad Villarama (Josess wife) she is also the treasurer
of the corporation, and shares subscribed by his brother and sister-in-law. In less than a
month after its registration with the SEC, the Corporation bought five certificates of public
convenience, forty-nine buses, tools and equipment from one Valentin Fernando which is
pending of approval of the sale by the PSC.

Before the PSC could take final action on said application for approval of sale,
however, the Sheriff of Manila, levied on 2 of the 5 certificates of public
convenience involved therein, pursuant to a writ of execution issued by the Court of First
Instance of Pangasinan in favor of Eusebio Ferrer. On July 16, 1959, a public sale was
conducted by the Sheriff of the said two certificates of public convenience. Ferrer was the
highest bidder, and a certificate of sale was issued in his name.

Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and
jointly submitted for approval their corresponding contract of sale to the PSC. Pantranco
therein prayed that it be authorized provisionally to operate the service involved in the
said two certificates.

The Corporation filed in the Court of First Instance, a complaint for the annulment of
the sheriff's sale of the aforesaid 2 certificates of public convenience in favor of the defendant
Ferrer, and the subsequent sale thereof by the latter to Pantranco, against Ferrer, Pantranco

Page 38 of 93
and the PSC. The plaintiff Corporation prayed therein that all the orders of the PSC relative to
the parties' dispute over the said certificates be annulled.

Pantranco, filed a third-party complaint against Jose M. Villarama, alleging that


Villarama and the Corporation, are one and the same; that Villarama and/or the Corporation
was disqualified from operating the two certificates in question by virtue of the agreement
between said Villarama and Pantranco.

ISSUE:

Whether or not the stipulation between Villarama and Pantranco, as contained in the
deed of sale binds Villa Rey Transit Inc.

HELD:

Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, taking into consideration
that Villarama supplied the organization expenses and the assets of the Corporation, where he
himself made use of the money of the Corporation and deposited them to his private accounts.
The Corporation furthermore paid his personal accounts. Villarama himself admitted that he
mingled the corporate funds with his own money. These circumstances are strong persuasive
evidence showing that Villarama has been too much involved in the affairs of the Corporation
to altogether negative the claim that he was only a part-time general manager. That the
restrictive clause in the contract entered into by the latter and Pantranco is enforceable and
binding against the said Corporation. For the rule is that a seller or promisor may not make
use of a corporate entity as a means of evading the obligation of his covenant. Where the
Corporation is substantially the alter ego of the covenantor to the restrictive agreement, it can
be enjoined from competing with the covenantee.

It is evident from the context thereof that the intention of the parties was to eliminate
the seller as a competitor of the buyer for ten years along the lines of operation covered by the
certificates of public convenience subject of their transaction. If the prohibition is to be
applied only to the acquisition of new certificates of public convenience thru an application
with the PSC, this would, in effect, allow the seller just the same to compete with the buyer as
long as his authority to operate is only acquired thru transfer or sale from a previous operator,
thus defeating the intention of the parties.

The stipulation prohibiting Villarama for a period of 10 years to "apply" for TPU
service along the lines covered by the certificates of public convenience sold by him to
Pantranco is valid and reasonable. Having arrived at this conclusion, and considering that the
preponderance of the evidence have shown that Villa Rey Transit, Inc. is itself the alter ego of
Villarama, the said Corporation should, until the expiration of the 1-year period
abovementioned, be enjoined from operating the line subject of the prohibition.

Page 39 of 93
De Facto Corporation
C. ARNOLD HALL and BRADLEY P. HALL
vs.
EDMUNDO S. PICCIO
G.R. No. L-2598
June 29, 1950

FACTS:

Petitioners and Private Respondents signed and acknowledged the articles of incorporation of
the Far Eastern Lumber and Commercial Co., Inc. organized to engage in a general lumber
business to carry on as general contractors, operators and managers. Attached to the articles
was an affidavit of the treasurer stating that 23, 428 shares of stock had been subscribed and
fully paid with certain properties transferred to the corporation. Immediately after the
execution of the articles of incorporation, the corporation proceeded to do business with the
adoption of by-laws and the election of its officers.
Then, the articles of incorporation were filed in SEC for the issuance of the corresponding
certificate of incorporation.

Pending action on the articles of incorporation, Fred Brown, Emma Brown,


Hipolita Chapman and Ceferino Abella filed a civil case against the Halls alleging among
other things that Far Eastern Lumber and Commercial Co, was an unregistered partnership
and that they wished to have it dissolved because of bitter dissension among the members,
mismanagement and fraud by the managers and heavy financial losses.

ISSUES:

Whether or not the Browns are estopped from claiming that it is not a corporation but only a
partnership.

HELD:

No. The Browns are not estopped. Because the SEC has not yet issued the
corresponding certificate of incorporation, all of them know or ought to know that the

Page 40 of 93
personality of a corporation begins to exist only from the moment such certificate is issued
and not before.

The complaining associates have not represented to the others that they were incorporated any
more than the latter had made similar representations to them.

And as nobody was led to believe anything to his prejudice and damage, the principle of
estoppel does not apply. This is not an instance requiring the enforcement of contracts with
the corporation through the rule of estoppel.

Corporation by Estoppel
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC.,
VS.
COURT OF APPEALS
GR NO. 119002
OCTOBER 19, 2000

FACTS:

Petitioner International Express Travel and Tour Services, Inc. offered its services as a
travel agency to the Philippine Football Federation (Federation), through its president private
respondent Henri Kahn.

Petitioner secured the airline tickets for the trips of the athletes and officials of the
Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to
the People's Republic of China and Brisbane. Henri Kahn issued a personal check in the
amount of P50,000 as partial payment for the outstanding balance of the Federation.
Thereafter, no further payments were made despite repeated demands.

This prompted petitioner to file a civil case before the Regional Trial Court of Manila.
Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and
impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn
liable for the unpaid balance for the tickets purchased by the Federation on the ground that
Henri Kahn allegedly guaranteed the said obligation.

Henri Kahn filed his answer with counterclaim. While not denying the allegation that
the Federation owed the amount P207,524.20, representing the unpaid balance for the plane
tickets, he averred that the petitioner has no cause of action against him either in his personal
capacity or in his official capacity as president of the Federation. He maintained that he did
not guarantee payment but merely acted as an agent of the Federation which has a separate
and distinct juridical personality.

Page 41 of 93
ISSUE:

Whether or not Respondent Kahn is personally liable?

RULING:

It is a basic postulate that before a corporation may acquire juridical personality, the
State must give its consent either in the form of a special law or a general enabling act. The
Philippine Football Federation could not have came into existence upon the passage of these
laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine
Football Federation. These laws merely recognized the existence of national sports
associations and provided the manner by which these entities may acquire juridical
personality.

Before an entity may be considered as a national sports association, such entity must
be recognized by the accrediting organization, the Philippine Amateur Athletic Federation
under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This
fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the
juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration
before the trial court a copy of the constitution and by-laws of the Philippine Football
Federation. Unfortunately, the same does not prove that said Federation has indeed been
recognized and accredited by either the Philippine Amateur Athletic Federation or the
Department of Youth and Sports Development. Accordingly, the court ruled that the
Philippine Football Federation is not a national sports association within the purview of the
aforementioned laws and does not have corporate existence of its own.

Thus being said, it follows that private respondent Henry Kahn should be held liable
for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled
principal in corporation law that any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and becomes personally
liable for contract entered into or for other acts performed as such agent. As president of the
Federation, Henri Kahn is presumed to have known about the corporate existence or non-
existence of the Federation. We cannot subscribe to the position taken by the appellate court
that even assuming that the Federation was defectively incorporated, the petitioner cannot
deny the corporate existence of the Federation because it had contracted and dealt with the
Federation in such a manner as to recognize and in effect admit its existence.

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 only when he tries to
escape liability on a contract from which he has benefited on the irrelevant ground of
defective incorporation. In the case at bar, the petitioner is not trying to escape liability from
the contract but rather is the one claiming from the contract.

Page 42 of 93
LIM TONG LIM
VS.
PHILIPPINE FISHING GEAR INDUSTRIES, INC.
GR. NO 136448
NOVEMBER 3, 1999

FACTS:

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered
into a Contract for the purchase of fishing nets of various sizes from the Philippine Fishing
Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business
venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement.
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a
prayer for a writ of preliminary attachment.

The trial court rendered its Decision, ruling that Philippine Fishing Gear Industries
was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent.

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao
in a fishing business and may thus be held liable as a such for the fishing nets and floats
purchased by and for the use of the partnership. The appellate court ruled:

ISSUES:

Whether or not the doctrine of corporation by estoppels can be imputed only to Chua
and Lao?

RULING:

It is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the
fishing business. They purchased the boats, which constituted the main assets of the

Page 43 of 93
partnership, and they agreed that the proceeds from the sales and operations thereof would be
divided among them.

One who assumes an obligation to an ostensible corporation as such, cannot resist


performance thereof on the ground that there was in fact no corporation. Thus, even if the
ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from
denying its corporate existence. "The reason behind this doctrine is obvious an
unincorporated association has no personality and would be incompetent to act and
appropriate for itself the power and attributes of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its behalf; thus, those who act or purport
to act as its representatives or agents do so without authority and at their own risk. And as it is
an elementary principle of law that a person who acts as an agent without authority or without
a principal is himself regarded as the principal, possessed of all the right and subject to all the
liabilities of a principal, a person acting or purporting to act on behalf of a corporation which
has no valid existence assumes such privileges and obligations and becomes personally liable
for contracts entered into or for other acts performed as such agent.

The doctrine of corporation by estoppel may apply to the alleged corporation and to a
third party. In the first instance, an unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in a suit against it by a third
person who relied in good faith on such representation. It cannot allege lack of personality to
be sued to evade its responsibility for a contract it entered into and by virtue of which it
received advantages and benefits.

On the other hand, a third party who, knowing an association to be unincorporated,


nonetheless treated it as a corporation and received benefits from it, may be barred from
denying its corporate existence in a suit brought against the alleged corporation. In such case,
all those who benefited from the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they impliedly assented to or
took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled
to be paid for the nets it sold. The only question here is whether petitioner should be held
jointly 18 liable with Chua and Yao. Petitioner contests such liability, insisting that only those
who dealt in the name of the ostensible corporation should be held liable. Since his name does
not appear on any of the contracts and since he never directly transacted with the respondent
corporation, ergo, he cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact
questions the attachment of the nets, because the Writ has effectively stopped his use of the
fishing vessel. Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered into by persons with

Page 44 of 93
whom he previously had an existing relationship, he is deemed to be part of said association
and is covered by the scope of the doctrine of corporation by estoppel.

MARIANO A. ALBERT
vs.
UNIVERSITY PUBLISHING CO., INC.
G.R. No. L-19118
January 30, 1965

FACTS:

Mariano Albert sued University Publishing Company., Inc alleging that the latter was
a corporation duly organized and existing under the laws of the Philippines; that defendant
publishing company, through its President Aruego entered into contract with plaintiff for the
exclusive right to publish his Revised Commentaries on the Revised Penal Code and for his
share in previous sales of the books first edition; and that defendant paid the first installment
however failed to make the second installment which made his obligation demandable in full.

Defendant admitted plaintiffs allegation of defendants corporate existence and the


execution and terms of the contract. However, he alleged that it is plaintiff who breached the
contract by not delivering his manuscript.

The Trial Court rendered judgment in favor of plaintiff. It ordered writ of execution
against Aruego, as the real defendant, stating that there is no such entity as University
Publishing Company Inc. evidenced by the certification from the SEC that the said Publishing
Company is not registered with the SEC neither as a corporation nor a partnership. Defendant
countered the same by filing a manifestation stating that Aruego is not a party in interest and
therefore the petition should be denied. The court denied the petition of the plaintiff.

ISSUES:

Whether or not the Publishing Company is a corporation as such it has a distinct and
separate personality from Aruego?

RULING:

Page 45 of 93
The fact of non-registration of the University Publishing Company Inc. in the Sec has
not been disputed. Thus, it cannot be considered a corporation not even a corporation de facto.
It has therefore no personality separate and distinct from that of Aruego, thus it cannot be sued
independently.

A person acting or purporting to act on behalf a corporation which has no valid


existence assumes such priveleges and obligations and becomes personally liable for the
contracts entered into or for other acts performed as such agent.

The evidence is patently clear that Aruego, acting as representative of a non-existent


principal, was the real party to the contract sued upon. That he was the one who reaped the
benefits resulting from it, so much so that the partial payment of the consideration were made
by him; that he violated the terms precipitating the suit in question and that in the litigation he
was the real defendant.

Non-user of Charter v. Continuous Inoperation


LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC.
vs.
HON. COURT OF APPEALS, ET AL.
G.R. No. 117188
August 7, 1997

FACTS:

LGVHAI was organized on February 8, 1983 as the association of homeowners and


residents of the Loyola Grand Villas. It was registered with the Home Financing Corporation,
the predecessor of herein respondent HIGC, as the sole homeowners' organization in the said
subdivision under Certificate of Registration No. 04-197. It was organized by the developer of
the subdivision and its first president was Victorio V. Soliven, himself the owner of the
developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws.

Sometime in 1988, the officers of the LGVHAI tried to register its by-laws but failed
to do so. To the officers' consternation, they discovered that there were two other
organizations within the subdivision the North Association and the South Association.
According to private respondents, a non-resident and Soliven himself, respectively headed
these associations. They also discovered that these associations had five (5) registered
homeowners each who were also the incorporators, directors and officers thereof. None of the
members of the LGVHAI was listed as member of the North Association while three (3)
members of LGVHAI were listed as members of the South Association. The North

Page 46 of 93
Association was registered with the HIGC covering Phases West II, East III, West III and East
IV. It submitted its by-laws on December 20, 1988.

Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of
the legal department of the HIGC, informed him that LGVHAI had been automatically
dissolved because it did not submit its by-laws within the period required by the Corporation
Code and, there was non-user of corporate charter because HIGC had not received any report
on the association's activities. Apparently, this information resulted in the registration of the
South Association with the HIGC on July 27, 1989 covering Phases West I, East I and East II.
It filed its by-laws on July 26, 1989.

These developments prompted the officers of the LGVHAI to lodge a complaint with
the HIGC. They questioned the revocation of LGVHAI's certificate of registration without
due notice and hearing and concomitantly prayed for the cancellation of the certificates of
registration of the North and South Associations by reason of the earlier issuance of a
certificate of registration in favor of LGVHAI.

ISSUE:

Whether or not the LGVHAI's failure to file its by-laws within the period prescribed
by Section 46 of the Corporation Code had the effect of automatically dissolving the said
corporation?

RULING:

No. By-laws may be adopted and filed prior to incorporation; in such case, such by-
laws shall be approved and signed by all the incorporators and submitted to the Securities and
Exchange Commission, together with the articles of incorporation. In all cases, by-laws shall
be effective only upon the issuance by the Securities and Exchange Commission of a
certification that the by-laws are not inconsistent with this Code.

In the absence of charter or statutory provisions to the contrary, by-laws are not
necessary either to the existence of a corporation or to the valid exercise of the powers
conferred upon it, certainly in all cases where the charter sufficiently provides for the
government of the body; and even where the governing statute in express terms confers upon
the corporation the power to adopt by-laws, the failure to exercise the power will be ascribed
to mere non-action which will not render void any acts of the corporation which would
otherwise be valid.

Although the Corporation Code requires the filing of by-laws, it does not expressly
provide for the consequences of the non-filing of the same within the period provided for in
Section 46.

Page 47 of 93
Non-filing of the by-laws will not result in automatic dissolution of the corporation.
Under Section 6(I) of PD 902-A, the SEC is empowered to "suspend or revoke, after proper
notice and hearing, the franchise or certificate of registration of a corporation" on the ground
inter alia of "failure to file by-laws within the required period." It is clear from this provision
that there must first of all be a hearing to determine the existence of the ground, and secondly,
assuming such finding, the penalty is not necessarily revocation but may be only suspension
of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on
time may be penalized merely with the imposition of an administrative fine without affecting
the corporate existence of the erring firm.

II. Board of Directors

Qualifications/Qualifying share
REP. LUIS R. VILLAFUERTE, et al
vs.
GOV. OSCAR S. MORENO,et al
G.R. No. 186566
October 2, 2009

FACTS:

During the 18th FIBA World Congress held at Tokyo, Japan, a Joint Communique was
entered into by the feuding Basketball Association of the Philippines (BAP) and the newly
formed Pilipinas Basketbol (PB), through their then incumbent Presidents, Jose D. Lina, Jr.
and Bernardo Gabriel L. Atienza. The main objectives of the Tokyo Communique are (1) to
unify said rival basketball associations and (2) to facilitate the lifting of the suspension
imposed by the Federation Internationale de Basketball (FIBA), which prevented the country
from participating in any international basketball competitions. Specifically, the Tokyo
Communique provides for the merger of the BAP and the PB resulting to a single united
basketball organization that will seek membership with the POC and will eventually take over
the membership of BAP in the FIBA. It also provides for the creation of a three-man panel
composed of the incumbent presidents of the BAP and the PB and a third member to be

Page 48 of 93
agreed upon by both presidents. Pursuant to the provisions of the Tokyo Communique,
Manuel V. Pangilinan was named as its third member and was even chosen as its Chairman.
Later, the Samahang Basketbol ng Pilipinas, Inc. (SBP) was established and its constitutive
documents consisting of the Articles of Incorporation were signed by the five incorporators,
which include petitioner Pangilinan. The parties later on entered into the Bangkok Agreement
where the final terms and conditions of the unity and merger of BAP and PB were integrated.

In a Unity Congress, nomination and election of the BAP-SBPs transitory officers for
the years 2007-2008 took place, the results of which had led to the proclamation of Luis
Villafuerte as Chairman, Victorico P. Vargas, as Vice-Chairman, petitioner Pangilinan, as
President, Marievic Aonuevo as secretary, respondent Christian Tan, as treasurer, and
Bonifacio Alentajan as legal counsel. However, a dispute arose when Pangilinan refused to
recognize the election of Villafuerte as Chairman of BAP-SBP on account of the alleged
failure of the latter to qualify for the said position. This led to the formation of two factions
within the BAP-SBP, contrary to the objectives of the communique. Eventually, two National
Congresses were held: one on June 4, 2008, and one on June 12, 2008. In the June 4
Congress, Villafuerte and Alentajan retained their previous positions while respondent Tan
assumed the position of Executive Director. On the other hand, respondent Prospero A.
Pichay, Jr. replaced Pangilinan as president, Wilson Young replaced Victorico P. Vargas as
Vice-Chairman and Teresita D. Abundo replaced petitioner Aonuevo as secretary. In the June
12 elections, Pangilinan, Vargas and Aonuevo retained their respective positions while
petitioners Oscar S. Moreno and Jose Emmanuel Eala were elected as Chairman and
Executive Director, respectively. Replacing respondent Tan, Ernesto Jay Adalem was
designated as treasurer of the organization.

On June 27, 2008, petitioners filed before the Regional Trial Court of Manila a
petition for declaration of nullity of the election of respondents as members of the Board of
Trustees and Officers of BAP-SBP. Petitioners alleged that the June 12, 2008 election was a
sham, illegal, and void. They also claimed to be the rightful and legally elected trustees and
officers of the BAP-SBP and thus prayed that the corporate reins of BAP-SBP be turned over
to them. Respondents argued that petitioners have no cause of action; that Villafuerte never
assumed the position of Chairman of the BAP-SBP because he failed to qualify for the same;
that before Villafuerte could legally assume the Chairmanship of BAP-SBP, he must first be
elected a member of the Board of Trustees; that petitioners June 4, 2008 National Congress
had no quorum because the attendees thereof were either mere associates and non-voting
members or actually non-members; and that only six of the attendees were active and voting
members.

ISSUE:

Which members of the BAP-SBP are entitled to vote and be voted upon as trustees
and officers of said organization.

HELD:

Page 49 of 93
The Bangkok Agreement merely intended to recognize the associations affiliated with
BAP and PB as members as against being labeled as just probationary members of the
BAP-SBP. However, said recognition does not dispense with the need to classify said
members in accordance with the provisions of BAP-SBPs Articles of Incorporation and By-
Laws, and the Tokyo Communique. The Tokyo Communiques directive to the three-man
panel is for it to review, verify, and validate the list of members as submitted by PB and BAP
to the FIBA Central Board Special Commission created to hear the Philippine Case based on
an agreed set of criteria for membership as formulated by said three-man panel. In other
words, there is a given process for validation of membership rather than the automatic grant
of voting or active membership status being insisted upon by petitioners. While the
organizations submitted by BAP and PB for BAP-SBP membership are no longer to be
considered as probationary, it does not mean that they need not undergo the validation or
accreditation process to determine which of these would qualify as active or voting members
of SBP and which ones would be classified as associate and affiliate members. While all three
classes are considered as regular members, not all could be granted the right to vote.

The three-man panel is mandated to review, verify and validate the lists of members
submitted by BAP and PB to FIBA based on an agreed set of criteria for membership
formulated by the three-man panel. In this connection, there is no question that the three-man
panel had not yet formulated a set of criteria prior to or as of the time of signing of the
Bangkok Agreement. Thus, the panel could not have possibly validated all organizations
proposed by the BAP and PB for BAP-SBP membership as active or voting members on a
wholesale basis. It could not have done so since there was still no set of criteria by which to
embark on such an endeavor.

Petitioners bare denial deserves short shrift in light of the documentary evidence
attesting to their active participation during BAP-SBPs validation of its members credentials
leading to the confirmation of active membership status to 19 members. Hence, respondents,
who were elected by 17 of the 19 active and voting members of the BAP-SBP during the
meeting held on June 12, 2008, are the legitimate officers of the organization, their election in
accordance with the applicable rules on the said exercise. Anent the chairmanship of the
Board of Trustees of the BAP-SBP, the Court of Appeals correctly held that petitioner
Villafuertes nomination must of necessity be understood as being subject to or in accordance
with the qualifications set forth in the By-Laws of the BAP-SBP. Since the said by-laws
require the Chairman of the Board of Trustees to be a trustee himself, petitioner Villafuerte
was not qualified since he had neither been elected nor appointed as one of the trustees of
BAP-SBP. In other words, petitioner Villafuerte never validly assumed the position of
Chairman because he failed in the first place to qualify therefor.

Page 50 of 93
CONSTANCIO T. BAGUIO
vs.
COURT OF APPEALS
G.R. No. 93417
September 14, 1993

FACTS:
In substance, the complaint alleged that respondents Donaldo Palma and Consuelo P.
Palma, being officers of respondent Las Palmas International Corporation sold to petitioner
600 shares of stock of said corporation. However, said respondents neither delivered the
shares nor returned the payment to him. Petitioner prayed for the refund of the amount of
P60,000.00 which he allegedly paid for the shares, together with various sums representing
moral and other damages.
In their answer with counter-claim, respondents Palmas claimed that petitioner failed
to pay for said shares. As affirmative defense, they alleged that there was no receipt issued to
prove payment.

Page 51 of 93
In the early part of April 1982, petitioner saw respondent Donaldo Palma to collect his
25% share in the profits earned by respondents Palmas when they sent 21 workers to Saudi
Arabia.
Instead of paying petitioner, respondents Palmas offered to sell him 600 shares of
stock or respondent Las Palmas for P60, 000.00 and to make him a director and vice-president
of the corporation.
ISSUE:
The pivotal issue in this appeal is a question of fact, i.e., whether on July 8, 1982,
petitioner actually paid respondent Palmas the sum of P60,000.00, the price of the shares of
stock sold to him.
HELD:
No,
Under Section 63 of the Corporation Code, no transfer of shares of stock shall be
valid, except as between the parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the transfer, the date of the transfer and the
number of the certificates and shares transferred. Petitioner has not shown compliance with
this law.
Petitioner further cites that if it were true that respondents Palmas failed to receive his
payment they should have passed another board resolution, specifically cancelling the offer
contained in board resolution (Exh. A). There was no need to issue another resolution
cancelling the board resolution, Exhibit A, because no certificate of stock was issued and no
transfer of shares was recorded in the books of the corporation pursuant thereto. More so, if
we consider the transaction is not between the corporation and petitioner but between private
respondents qua stockholders and petitioner.
Petitioner cannot claim that being a member of the board of directors and occupying
the position of Vice-President-International necessarily imply that he must have owned duly-
paid shares of stock.
The election of a person to the board of directors of a corporation does not necessarily
mean that he has paid for the shares recorded in his name. In most cases, nominee directors do
not pay for the qualifying shares assigned to them. Likewise, the Corporation Code does not
require that one elected or appointed as vice-president of a corporation should be the owner of
shares of stock of the corporation.

Page 52 of 93
DETECTIVE & PROTECTIVE BUREAU, INC.
VS.
THE HONORABLE GAUDENCIO CLORIBEL
G.R. No. L-23428
November 29, 1968

FACTS:

Alberto was managing director of plaintiff corporation, that he allegedly seized and
took control of all the assets as well as the books, records, vouchers and receipts of the
corporation from the accountant-cashier, concealed them illegally and refused to allow any
member of the corporation to see and examine the same; that the stockholders removed
defendant and elected de la Rosa in his stead; that he continued to perform unauthorized acts
for and in behalf of plaintiff corporation; that he had been illegally disposing of corporate
funds.

Petitioner contended that Alberto had arrogated to himself the power of the Board of
Directors of the corporation because he refused to vacate the office and surrender the same to
de la Rosa who had been elected managing director by the Board to succeed him. However

Page 53 of 93
this was disputed by Alberto who stated that de la Rosa could not be elected managing
director because he did not own any stock in the corporation.

ISSUE:

Whether de la Rosa may be elected as managing director

HELD:

No. There is in the record no showing that Jose de la Rosa owned a share of stock in
the corporation. If he did not own any share of stock, certainly he could not be a director
pursuant to the mandatory provision of Section 30 of the Corporation Law. If he could not be
a director, he could also not be a managing director of the corporation, pursuant to Article V,
Section 3 of the By-Laws of the Corporation.

If the managing director-elect was not qualified to become managing director,


respondent Fausto Alberto could not be compelled to vacate his office and cede the same to
the managing director-elect because the by-laws of the corporation provides in Article IV,
Section 1 that "Directors shall serve until the election and qualification of their duly qualified
successor."

GRACE CHRISTIAN HIGH SCHOOL


vs.
THE COURT OF APPEALS
G.R. No. 108905
October 23, 1997

FACTS:
Petitioner Grace Christian High School is an educational institution offering
preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Private
respondent Grace Village Association, Inc., on the other hand, is an organization of lot and/or
building owners, lessees and residents at Grace Village, while private respondents Alejandro
G. Beltran and Ernesto L. Go were its president and chairman of the committee on election,
respectively, in 1990, when this suit was brought.
It appears that on December 20, 1975, a committee of the board of directors prepared a
draft of an amendment to the by-laws. This draft was never presented to the general
membership for approval. Nevertheless, from 1975, after it was presumably submitted to the

Page 54 of 93
board, up to 1990, petitioner was given a permanent seat in the board of directors of the
association. On February 13, 1990, the associations committee on election in a letter
informed James Tan, principal of the school, that it was the sentiment that all directors should
be elected by members of the association because to make a person or entity a permanent
Director would deprive the right of voters to vote for fifteen (15) members of the Board, and
it is undemocratic for a person or entity to hold office in perpetuity. Tan was told that the
proposal to make the Grace Christian High School representative as a permanent director of
the association, although previously tolerated in the past elections should be reexamined.
Following this advice, notices were sent to the members of the association that the provision
on election of directors of the 1968 by-laws of the association would be observed.
Petitioner requested the chairman of the election committee to change the notice of
election by following the procedure in previous elections, claiming that the notice issued for
the 1990 elections ran counter to the practice in previous years and was in violation of the by-
laws (of 1975) and unlawfully deprived Grace Christian High School of its vested right to a
permanent seat in the board.
As the association denied its request, the school brought suit for mandamus in the
Home Insurance and Guaranty Corporation to compel the board of directors of the association
to recognize its right to a permanent seat in the board. Petitioner based its claim on the
following portion of the proposed amendment which, it contended, had become part of the by-
laws of the association as Article VI, paragraph 2
The association contended that the basis of the petition for mandamus was merely a
proposed by-laws which has not yet been approved by competent authority nor registered with
the SEC or HIGC. It argued that the by-laws which was registered with the SEC on January
16, 1969 should be the prevailing by-laws of the association and not the proposed amended
by-laws.
ISSUE:
Whether or not petitioners representative shall be validly allowed to sit in the board
of directors as a permanent member thereof on the basis of practice
HELD:
The board of directors of corporations must be elected from among the stockholders or
members. There may be corporations in which there are unelected members in the board but it
is clear that in the examples cited by petitioner the unelected members sit as ex officio
members, i.e., by virtue of and for as long as they hold a particular office. But in the case of
petitioner, there is no reason at all for its representative to be given a seat in the board. Nor
does petitioner claim a right to such seat by virtue of an office held. In fact it was not given
such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws
sought to give it one.

Page 55 of 93
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 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 through acquiescence because, if it is contrary to law, it is beyond the power of
the members of the association to waive its invalidity. For that matter the members of the
association may have formally adopted the provision in question, but their action would be of
no avail because no provision of the by-laws can be adopted if it is contrary to law.
It is probable that, in allowing petitioners representative to sit on the board, the
members of the association were not aware that this was contrary to law. It should be noted
that they did not actually implement the provision in question except perhaps insofar as it
increased the number of directors from 11 to 15, but certainly not the allowance of petitioners
representative as an unelected member of the board of directors. It is more accurate to say that
the members merely tolerated petitioners representative and tolerance cannot be considered
ratification.
Nor can petitioner claim a vested right to sit in the board on the basis of practice.
Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to
law. Even less tenable is petitioners claim that its right is co-terminus with the existence of the
association.

RAMON C. LEE and ANTONIO DM. LACDAO


vs.
THE HON. COURT OF APPEALS
G.R. No. 93695
4 February 1992

FACTS:

This case stemmed from a complaint for sum of money filed by International
Corporate Bank against private respondents Sacoba Manufacturing Corp., and the Gonzaleses
who in turn, filed a third party complaint against Alfa Integrated Textile Mills (ALFA)
through petitioners Lee and Lacdao as its president and vice-president.
The trial court issued alias summons upon ALFA through the DBP pursuant to the
manifestation of petitioners that management of ALFA was transferred to DBP by virtue of a
Voting Trust Agreement.

Private respondents argue that the voting trust agreement did not divest petitioners of
their positions as president and vice-president of ALFA so that service of summons upon
ALFA through them as corporate officers was proper.

Page 56 of 93
Petitioners on the other hand, argue that by virtue of the agreement, they transferred to
the trustee (DBP) all their shares to the corporation which effectively deprived the
stockholders of their positions as directors of the corportaion hence they could no longer
receive summons for or on behalf of ALFA.

ISSUE:

Whether or not petitioners lost their qualifying shares as directors of the corporation?

HELD:

(1) YES.
Under the present corporation code, section 23 omits the phrase in his own right
which was found in the old one. This is a clear indication that in order to be eligible as a
director, what is material is the legal title to, not the beneficial ownership of, the stock as
appearing on the books of the corporation.

Thus, when petitioners disposed of all their shares through assignment and delivery in
favor of the DBP by virtue of the Voting Trust Agreement, they ceased to own at least one
share standing in their names on the books of ALFA as required by section 23. They also
ceased to have anything to do with the management of the enterprise. The petitioners ceased
to be directors. Hence, the transfer created vacancies in their respective positions as directors
of ALFA. The transfer of shares from the stockholder of ALFA to the DBP is the essence of
the subject voting trust agreement as evident from the stipulations in the agreement. The DBP
therefore as trustee became the stockholder of record respecting said shares.

A voting trust agreement is an agreement in writing whereby one or more


stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest
in the latter voting or other rights pertaining to said shares for a period not exceeding five
years upon the fulfillment of statutory conditions and such other terms and conditions
specified in the agreement. The five year-period may be extended in cases where the voting
trust is executed pursuant to a loan agreement whereby the period is made contingent upon
full payment of the loan.

By its very nature, a voting trust agreement results in the separation of the voting
rights of a stockholder from his other rights such as the right to receive dividends, the right to
inspect the books of the corporation, the right to sell certain interests in the assets of the
corporation and other rights to which a stockholder may be entitled until the liquidation of the
corporation. The execution of a voting trust agreement, therefore, may create a dichotomy
between the equitable or beneficial ownership of the corporate shares of a stockholders, on the
one hand, and the legal title thereto on the other hand.

However, a voting trust agreement may confer upon a trustee not only the
stockholder's voting rights but also other rights pertaining to his shares as long as the voting

Page 57 of 93
trust agreement is not entered for the purpose of circumventing the law against monopolies
and illegal combinations in restraint of trade or used for purposes of fraud.

Disqualifications
ENRIQUE BRIAS
VS.
JOHN S. HORD, ET AL.
G.R. No. L-8387
February 5, 1913

FACTS:

John S. Hord was the duly elected president of the Bank of the Philippine Islands
(BPI), a banking corporation duly organized and existing under and by virtue of the laws of
the Philippines Islands, and the other respondents are the duly elected and members of the
board of directors of said corporation.

On February 13, 1912, at a regular meeting of the shareholders of the BPI, petitioner
was duly elected as a member of the board of directors. On February 19, 1912, at a regular
meeting of the board of directors of the said Bank of the Philippine Islands, petitioner was
duly elected and appointed as a member of the committee of credits of said board of directors.

Page 58 of 93
On August 15, 1912, petitioner, acting as a member of the board of directors of said
corporation and of the committee of credits, made application to the respondent John S. Hord,
as president of said corporation, for authority and opportunity to examine and inspect the
books of account of said corporation then in the possession and under the immediate control
of said respondent. However, it was refused and denied by respondent, and although
repeatedly requested so to do, said respondents refused to permit petitioner to examine or
inspect the books of account of said corporation.

On October 24, 1912, during a regular meeting of the board, respondents excluded
petitioner from said meeting and from the exercise and enjoyment of any and all of the
functions, powers, and attributes of his office, depriving him from performing his duties due
to the alleged resignation of petitioner, Enrique P. Brias. Thus, they declared his office and
position as vacant.

In his defense, Brias denied the allegation of the respondent regarding his resignation
and that he is being deprived of his right as member of the board so he filed the said case.

ISSUE:

Whether or not Enrique Brias resigned as a member of the board of directors of the
bank?

RULING:

It appears that at the meeting of the board on September 26, 1912, a renewal of the
discussion relating to such credits took place and that personal feeling ran high. Certain
members of the board did not hesitate to make remarks which seemed to reflect upon the
personal honor of others. It was at this time and under these conditions, when some members
of the board were apparently much excited, when it is alleged that the respondent
unequivocally resigned his position.

It appears from the record that the minutes of the proceedings of the meeting of the
September 26, 1912, kept by the secretary were destroyed. In the present case, the minutes
were not prepared by the secretary. His minutes had been destroyed. The minutes presented in
evidence were prepared by the board itself, or by certain members of the same in the absence
of the petitioner. It is also a fact that said minutes were prepared after the president of the
board had received a letter from the petitioner, dated September 28, 1912, two days after the
alleged resignation was made, in which the petitioner expressly indicated that he did not
intend to resign from his position as a member of such board.

Page 59 of 93
It will be noted that no words are here attributed to the petitioner which indicate that
he then and there absolutely and unequivocally resigned. The most that can be said is that he
ceased to attend its meetings. No words are attributed to him, even by said minutes, which
show conclusively that the petitioner did then and there resign.

The minutes presented in evidence failed to put into the mouth of the petitioner the
words he was resigning or the phrase he was going to resign. It is quite evident that in
preparing the minutes it was intended by those preparing them to make them show just what
the petitioner did and said.

A mere statement by a member that he withdraws from a meeting or that he will have
nothing more to do with the office is not sufficient upon which to predicate an absolute
resignation.

The Court concludes that the record failed to show that the petitioner did resign his
position as a member of the board of directors of the respondent bank. The Court therefore
find that petitioner is entitled to exercise all of the rights, privileges, and emoluments
belonging and pertaining to a member of said board.

Election Voting
Wolfgang Aurbach, et al.
vs.
Sanitary Wares Manufacturing Corporation, et al.
G.R. No. 75875
December 15, 1989

FACTS:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose
of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young
went abroad to look for foreign partners, European or American who could help in its
expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware,
United States entered into an Agreement with Saniwares and some Filipino investors whereby
ASI and the Filipino investors agreed to participate in the ownership of an enterprise which
would engage primarily in the business of manufacturing in the Philippines and selling here
and abroad vitreous china and sanitary wares. The parties agreed that the business operations

Page 60 of 93
in the Philippines shall be carried on by an incorporated enterprise and that the name of the
corporation shall initially be "Sanitary Wares Manufacturing Corporation."

At the request of ASI, the agreement contained provisions designed to protect it as a minority
group, including the grant of veto powers over a number of corporate acts and the right to
designate certain officers, such as a member of the Executive Committee whose vote was
required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the condition that at
least 60% of the capital stock of the corporation shall be owned by Philippine nationals.
Subsequently, the conflict arose on March 8, 1983 when the annual stockholders'
meeting was held. After disposing of the preliminary items in the agenda, the stockholders
then proceeded to the election of the members of the board of directors. The ASI group
nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham.
The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan,
Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then
nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The
chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5
(a) of the Agreement, the consistent practice of the parties during the past annual stockholders'
meetings to nominate only nine persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel.
ISSUE:

Who were the duly elected directors of Saniwares for the year 1983 during its annual
stockholders meeting held on March 8, 1983?

HELD:

The Court ruled that Wolfang Aurbach, John Griffin, David P. Whittingham, Ernesto
Lagdameo, Sr., Baldwin Young, Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, and
George F. Lee, as the duly elected directors of Saniwares on March 8, 1983. Under their
agreement, both parties were given the right their shares cumulatively. ASI, however, should
not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be
able to designate more than the three (3) directors it is allowed to designate under the
Agreement, and may even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties. The foreign group (ASI) was limited to
deginate three (3) directors. This is the allowable participation of the foreign group. Hence, in
future dealings, this limitation of six to three board seats should always be maintained as long
as the joint venture agreement exists considering that in limiting three (3) board seats in the
nine-man board of directors, there are provisions already agreed upon and embodied in the

Page 61 of 93
parties Agreement to protect the interests arising from the minority status of the foreign
corporation.

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO),


vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,ET.Al
G.R.No.75885
May27,1987

FACTS:

BASECO describes itself in its petition as a ship repair and shipbuilding company
incorporated as a domestic private corporation on Aug.30,1972 by a consortium of Filipino
ship owners and shipping executives. Its main office is at Engineer Island, Port Area, Manila,
where its Engineer Island Shipyard is housed, and its main shipyard is located at Mariveles
Bataan. "Its Articles of Incorporation disclose that its authorized capital stock is
P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of
P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of
P3,035,000.00 has been paid by the incorporators. The same articles Identify the

Page 62 of 93
incorporators, numbering fifteen(15). By 1986, however, of these fifteen (15) incorporators,
six (6) had ceased to be stockholders. Barely six months after its incorporation, BASECO
acquired from National Shipyard & Steel Corporation, or NASSCO, a government-owned or
controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan
National Shipyard (BNS), and except for NASSCO's Engineer Island Shops and certain
equipment of the BNS, consigned for future negotiation all its structures, buildings, shops,
quarters, houses, plants, equipment and facilities, in stock or in transit. This it did invirtue of a
"Contract of Purchase and Sale with Chattel Mortgage" executed on February 13,1973. The
price was P52,000,000.00. As partial payment thereof, BASECO delivered to NASSCO a
cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from
completion of the inventory undertaken pursuant to the contract. The balance of
P41,600,000.00, with interest at seven percent (7%) perannum, compounded semi-annually,
was stipulated to be paid in equal semi-annual installments over a term of nine (9) years,
payment to commence after a grace period of two (2) years from date of turn over of the
shipyard to BASECO. Unaccountably, the price of P52,000,000.00 was reduced by more than
one-half, to P24,311,550.00, about eightn(8) months later. A document to this effect was
executed on October 9,1973, entitled" Memorandum Agreement," and was signed for
NASSCO by Arturo Pacificador, as Presiding Officer of theB oard of Directors, and David R.
Ines, as General Manager. This agreement bore, at the top right corner of the first page, the
word "APPROVED" in the handwriting of President Marcos, followed by his usual full
signature. The document recited that a downpayment of P5,862,310.00 had been made by
BASECO, and the balance of P19,449,240.00 was payable in equal semi-annual installments
over nine (9) years after a grace period of two (2) years, with interest at 7% per annum.

ISSUE:

Whether or not the PCGG can exercise acts of ownership over the properties
sequestered.

HELD:

The PCGG cannot exercise acts of dominion over property sequestered, frozen or
provisionally taken over. As already earlier stressed with no little insistence, the act of
sequestration; freezing or provisional takeover of property does not import or bring about
divestment of title over said property; does not make the PCGG the owner thereof. In relation
to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not
an owner. Therefore, it cannot perform acts of strict ownership; and this is especially true in
the situations contemplated by the sequestration rules where, unlike cases of receivership, for
example, no court exercises effective supervision or can upon due application and hearing,
grant authority for the performance of acts of dominion. Equally evident is that the resort to

Page 63 of 93
the provisional remedies in question should entail the least possible interference with business
operations or activities so that, in the event that the accusation of the business enterprise being
"illgotten" be not proven, it may be returned to its rightful owner as far as possible in the same
condition as it was at the time of sequestration. The PCGG may thus exercise only powers of
administration over the property or business sequestered or provisionally taken over, much
like a court-appointed receiver. It is not that of manager, or innovator, much less an owner.

So, too, it is within the parameters of the conditions and circumstances that the PCGG
may properly exercise the prerogative to vote sequestered stock of corporations, granted to it
by the President of the Philippines. There should be no exercise of the right to vote simply
because the right exists, or because the stocks sequestered constitute the controlling or a
substantial part of the corporate voting power. The stock is not to be voted to replace
directors, or revise the articles or by-laws, or otherwise bring about substantial changes in
policy, program or practice of the corporation except for demonstrably weighty and defensible
grounds, and always in the context of the stated purposes of sequestration or provisional take
over.

In the case at bar, there was adequate justification to vote the incumbent directors out
of office and elect others in their stead because the evidence showed prima facie that the
former were just tools of President Marcos and were no longer owners of any stock in the
firm, if they ever were at all.

Election Contests

CORAZON H. RICAFORT,
vs.
ROBERTO R. ROMULO
G.R. NOS. 205921-24
March 9, 2016
FACTS:

The NADECOR is a domestic company which was first registered with the Securities
and Exchange Commission (SEC) on September 6, 1956. It is the holder of a Mining
Production Sharing Agreement (MPSA), MPSA 009-92-XI, with the Department of
Environment and Natural Resources (DENR), which covers the King-king Gold and Copper
Project (King-king Project), a 1,656-hectare gold and copper mining concession in Barangay
King-king, Municipality of Pantukan, Province of Compostela Valley in Mindanao.

Pursuant to Section 1, Article I of NADECOR's Amended By-Laws,7 its regular


annual stockholders' meeting (ASM) was held on August 15, 2011 to elect its Board of
Directors for Fiscal Year (FY) 2011-2012. The meeting was held in the Turf Room of the

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Manila Polo Club, South Forbes Park, Makati City. In his Affidavit8 dated November 21,
2011, Gatmaitan, NADECOR Corporate Secretary, attested to the presence of a quorum
representing 94.81% of NADECOR's outstanding shares of stock, and the election of new set
of its Board of Directors, namely, Calalang, Jose G. Ricafort (JG Ricafort), Jose P. De Jesus
(De Jesus), Romulo, Ayala, Victor P. Lazatin (Lazatin), Ethelwoldo E. Fernandez (Fernandez),
Nitorreda and Engle.9

But on October 20, 2011, more than two months after the ASM, Corazon H. Ricafort
(Corazon), wife of JG Ricafort, along with their children, Jose Manuel H. Ricafort (Jose
Manuel), Marie Grace H. Ricafort (Marie Grace) (petitioners), and Maria Teresa Flora R.
Santos (Maria Teresa) (plaintiffs), claiming to be stockholders of record, filed a complaint
before the RTC to declare null and void "the 15 August 2011 [ASM] of NADECOfRJ,
including all proceedings taken thereat, all the consequences thereof, and all acts carried out
pursuant thereto,"10 against NADECOR itself, the newly-elected members of its Board of
Directors, and Gatmaitan (defendants). The plaintiffs alleged, among others, that "they had no
knowledge or prior notice of, and were thus unable to attend, participate in, and vote at, the
said [ASM]"11 since they received the notice of the ASM only on August 16, 2011, or one
day late, in violation of the three-day notice provided in NADECOR's By-Laws; that due to
lack of notice, they failed to attend the said ASM and to exercise their right as stocldiolders to
participate in the management and control of NADECOR. They further noted that the notice
announced a time and venue different from those set forth in the By-Laws.12

ISSUE:
Whether or not this is a case of election contest?

HELD:

Yet, there can be no denying that by (a) asserting their "right to choose the persons
who will direct, manage and operate the corporation is significant because it is the primary
way in which a stockholder can have a voice in the management of corporate affairs,"116
because they said they had been unlawfully deprived thereof due to late notification of the
aforesaid meeting, and (b) by praying for the voiding of the August 15, 2011 ASM, and for
"other just and equitable reliefs,"117 the petitioners were really seeking the holding of a new
election for members of the Board of Directors of NADECOR for FY2011-2012

Indeed, to nullify the August 15, 2011 ASM would have had no practical effect except
to void the election of the Board of Directors.120 And no doubt, this was the trial court's
understanding of the petitioners' intent when it voided the August 15, 2011 ASM and all
matters taken up thereat. Thus, by declaring as void all "acts, decisions, deeds, incidents,
matters taken up arising from and subsequent to the 2011 [ASM],"121 things which could
only be performed by the newly-elected Board, and then by directing the issuance of a three-
day notice for the holding of a new ASM corresponding to FY2011-2012, the trial court
clearly understood that a new election should be held for Board of Directors of NADECOR
for FY2011-2012, notwithstanding its express ruling that SEC Case No. 11-164 did not

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involve an election contest and therefore the 15-day prescriptive period to file the petitioners'
complaint did not apply.

As found by the CA, the petitioners did participate in the stockholders' meeting
through their authorized representative and proxy, JG Ricafort. In his Affidavit132 dated
November 21, 2011, Gatmaitan, NADECOR Corporate Secretary, categorically declared
under oath that JG Ricafort held a valid irrevocable proxy from the petitioners to attend and
vote their shares at all meetings of the stockholders, and that JG Ricafort signed the
attendance sheet for and in behalf of the plaintiffs as shown by his signatures in the rows in
the said attendance sheet for the names of the plaintiffs who had appointed him as his proxy.

Report on Election
PREMIUM MARBLE RESOURCES, INC.,
vs.
THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK
G.R. No. 96551
November 4, 1996

FACTS:

Ayala Investment and Development Corporation issued three checks payable to the
Premium Marble Resources, Inc. (Premium). Former officers of Premium deposited the
checks to the current account of its conduit corporation, Intervest. Although the checks were
clearly payable to Premium, International Corporated Bank (ICB) accepted the checks and
deposited to the current account of Intervest. New officers of Premium sued ICB for damages
for the alleged the latters illegal and irregular acts. Former officers of Premium then filed a
motion to dismissed the complaint on the ground that the filing of the case was without
authority from its duly constituted board of directors.

Page 66 of 93
New officers countered the motion to dismiss by presenting the Articles of
Incorporation wherein they were stated as the Directors of Premium and the Minutes of the
Meeting of the Board on April 1, 1982 that they were the newly elected officers of the year.
Former officers argued that the best evidence is the general information sheet filed with the
Securities and Exchange Commission (SEC) and the latters Certification stating that as of
March 4, 1981, they were the officers and members of the board of directors of Premium.

ISSUE:

Is the filing of the case for damages authorized by a duly constituted Board of
Directors of Premium?

RULING:

No.

By express mandate of the Corporation Code, all corporations duly organized pursuant
thereto are required to submit within 30 days to the SEC the names, nationalities and
residences of the directors, trustees and officers elected:

Sec. 26. Report of election of directors, trustees and officers. Within thirty
(30) days after the election of the directors, trustees and officers of the corporation,
the secretary, or any other officer of the corporation, shall submit to the Securities and
Exchange Commission, the names, nationalities and residences of the directors,
trustees and officers elected. . . .

Evidently, the objective sought to be achieved by Section 26 is to give the public


information, under sanction of oath of responsible officers, of the nature of business, financial
condition and operational status of the company together with information on its key officers
or managers so that those dealing with it and those who intend to do business with it may
know or have the means of knowing facts concerning the corporation's financial resources and
business responsibility.

While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly
elected officers for the year 1982 were the new officers, they failed to show proof that this
election was reported to the SEC. In fact, the last entry in their General Information Sheet
with the SEC, as of 1986 appears to be former officers. The claim, therefore, of the new
officers as the incumbent officers of Premium has not been fully substantiated.

The power of the corporation to sue and be sued in any court is lodged with the board
of directors that exercises its corporate powers. In the absence of an authority from the board
of directors, no person, not even the officers of the corporation, can validly bind the
corporation. Their claim for damages must be dismissed.

Page 67 of 93
Term of Office/Holdover
SECURITIES AND EXCHANGE COMMISSION AND VERNETTE G. UMALI,
vs.
BAGUIO COUNTRY CLUB CORPORATION
G.R. No. 165146
August 12, 2015

FACTS:

These are consolidated cases questioning the March 26, 2004 Decision1 and
September 1, 2004 Resolution of the Court of Appeals (CA) in C.A. G.R. SP No. 79257. On
December 17, 1998, the Securities and Exchange Commission (SEC) approved the amended
by-laws submitted by the Baguio Country Club Corporation (BCCC). Article 5, Section 2
thereof reads:

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Election and Term. The Board of Directors shall be elected at the regular meetings or
stockholders and shall hold office for two (2) years and until their successors are elected and
qualified. x x x

On September 27, 2002, Atty. Manuel R. Singson, acting for and in behalf of Ramon
K. Ilusorio and Erlinda Ilusorio (the Ilusorios) requested the SEC, via a letter-complaint, to
compel BCCC to hold the annual election of the board of directors for 2002 in view of the
nullity of the above-quoted provision in the amended by-laws. He informed the SEC that
sometime in 2001, a stockholder of BCCC requested for the opinion of the SEC on the
validity of the amendment, particularly the two (2) year term of the board of directors; and
that in response, the SEC opined that the amendment increasing the term of office to two (2)
years is contrary to law, particularly Section 23 of the Corporation Code which limits the term
of office to only one (1) year.

In its Comment to the said letter, BCCC claimed that its amended by laws have
already been approved by the SEC and that the petitioners have no standing to question the
said by-laws, not being stockholders of the BCCC. On November 13, 2002, the SEC, through
the Corporation Registration and Monitoring Department, issued an Order ruling that Article
5, Section 2 of the amended by-laws of BCCC violates Section 23 of the Corporation Code on
the term of office of members of the board of directors and should be amended to conform to
the rules. The SEC also ordered BCCC to conduct the annual election of members of the
board.

On March 18, 2003, Ramon Ilusorio, as stockholder of BCCC, formalized Atty.


Singson 's letter-request through a petition with the SEC. He alleged among others, that the
BCCC refused to conduct a stockholders' meeting for the election of board members, and that
the individuals claiming to be officers of the BCCC used their positions to manipulate
stockholders' meeting to their advantage and harass those who have opposed them. The
petition prayed for the SEC to call and conduct, under its control and supervision, a
stockholder's meeting in the BCCC for the election of the members of the board of directors.

In its August 15, 2003 Order, the SEC observed that the only issue that must be
resolved is whether or not the SEC can call a stockholders' meeting for the purpose of
conducting an election of the BCCC board of directors. It ruled that under the Corporation
Code, it has the power to call such a meeting and to order the conduct of an election of new
board members in the BCCC. Thus it ordered, among others, the calling and conduct of a
stockholders meeting for the election of the members of the board under the control and
supervision of the SEC.

ISSUES:

Page 69 of 93
Whether or not the commission can call a stockholders' meeting for the purpose of
conducting an election of the BCCC board of directors.

HELD:

The present case is not about the rights of the petitioners in relation to the respondent (as a
corporation). The subject matter herein is the violation by the respondent of the Corporation
Code. This is about the law and the by-laws or the respondent, and not the petitioners against
respondent. The exercise of SEC's regulatory authority in the present case was merely for the
purpose of enforcing or implementing the law, and not to resolve a controversy. Thus, the
submission that the present case is an intra-corporate controversy is highly remote, not to say
baseless.

Simply put, the Ilusorios merely invoked the SEC to exercise what it perceived to be the
latter's power to compel BCCC to comply with the law pertaining to the term limits of the
board of directors. With the amendment restoring the term of the board to one (1) year, there
is no more illegal provision to speak of.

DR. HANS CHRISTIAN M. SEERES


vs.
COMMISSION ON ELECTIONS and MELQUIADES A. ROBLES
G.R. No. 178678, April 16, 2009

FACTS:

Private respondent Robles was elected president and chairperson of Buhay, a party-list
group duly registered with COMELEC. The constitution of BUHAY provides for a three-year
term for all its party officers, without re-election. Robles again signed and filed a Certificate
of Nomination of BUHAYs nominees for the 2007 elections, however such certificate was
denied by petitioner alleging that he was the acting president and secretary-general of
BUHAY, having assumed that position since August 17, 2004 when Robles vacated the
position. Seeres further claimed that the nominations made by Robles were, for lack of
authority, null and void owing to the expiration of the latters term as party president.

Page 70 of 93
On May 10, 2007, the National Council of BUHAY adopted a resolution expelling
Seeres as party member for his act of submitting a Certificate of Nomination for the party.
Subsequently, Robles was adjudged as the duly authorized representative of Buhay.
Aggrieved, petitioner filed this complaint.

ISSUE:

Whether or not respondent Robles is the duly authorized representative of BUHAY?

RULING:

As a general rule, officers and directors of a corporation hold over after the expiration
of their terms until such time as their successors are elected or appointed. Sec. 23 of the
Corporation Code contains a provision to this effect, thus: the board of directors or trustees to
be elected from among the holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year until their successors are
elected and qualified.

The holdover doctrine accords validity to what would otherwise be deemed as dubious
corporate acts and gives continuity to a corporate enterprise in its relation to outsiders. The
voting members of BUHAY duly elected Robles as party President in October 1999. And
although his regular term as such President expired in October 2002, no election was held to
replace him and the other original set of officers. Further, the constitution and by-laws of
BUHAY do not expressly or impliedly prohibit a hold-over situation. As such, since no
successor was ever elected or qualified, Robles remained the President of BUHAY in a "hold-
over" capacity.

How Removed

JOSE A. BERNAS, et al,


vs.
JOVENCIO F. CINCO, et al
G.R. Nos. 163356-57
July 01, 2015

FACTS:

Makati Sports Club (MSC) is a domestic corporation duly organized and existing
under Philippine laws for the primary purpose of establishing, maintaining, and providing
social, cultural, recreational and athletic activities among its members.

Page 71 of 93
The Bernas Group were among the Members of the Board of Directors and Officers
of the corporation whose terms were to expire either in 1998 or 1999. The Cinco Group
composed are the members and stockholders of the corporation who were elected Members of
the Board of Directors and Officers of the club during the 17 December 1997 Special
Stockholders Meeting.

Alarmed with the rumored anomalies in handling the corporate funds, the MSC
Oversight Committee (MSCOC), composed of the past presidents of the club, demanded from
the Bernas Group, who were then incumbent officers of the corporation, to resign from their
respective positions to pave the way for the election of new set of officers. Resonating this
clamor were the stockholders of the corporation representing at least 100 shares who sought
the assistance of the MSCOC to call for a special stockholders meeting for the purpose of
removing the sitting officers and electing new ones.
Pursuant to such request, the MSCOC called a Special Stockholders Meeting and sent
out notices to all stockholders and members stating therein the time, place and purpose of the
meeting. For failure of the Bernas Group to secure an injunction before the Securities
Commission (SEC), the meeting proceeded wherein the Bernas Group were removed from
office.
Meanwhile, the newly elected directors initiated an investigation on the alleged
anomalies in administering the corporate affairs and after finding Bernas guilty of
irregularities, the Board resolved to expel him from the club by selling his shares at public
auction. After the notice requirement was complied with, Bernas shares was accordingly sold
for P902,000.00 to the highest bidder.

Prior to the resolution of the SEC Case, an Annual Stockholders Meeting was held on
April 1998 pursuant to Section 8 of the MSC bylaws. During the said meeting, which was
attended by 1,017 stockholders representing 2/3 of the outstanding shares, the majority
resolved to approve, confirm and ratify, among others, the calling and holding of December
1997 Special Stockholders Meeting, the acts and resolutions adopted therein including the
removal of Bernas Group from the Board and the election of their replacements.

Due to the filing of several petitions for and against the removal of the Bernas Group
from the Board pending before the SEC resulting in the piling up of legal controversies
involving MSC, the SEC En Banc, in its Decision on March 1999, resolved to supervise the
holding of the 1999 Annual Stockholders Meeting. During the said meeting, the stockholders
once again approved, ratified and confirmed the holding of the December 1997 Special
Stockholders Meeting.

The conduct of the December 1997 Special Stockholders Meeting was likewise
ratified by the stockholders during the 2000 Annual Stockholders Meeting which was held on
April 2000.redarclaw

In May 2000, the SICD rendered a Decision in the SEC Case finding that the
December 1997 Special Stockholders Meeting and the Annual Stockholders Meeting

Page 72 of 93
conducted on April 1998 and April 1999 are invalid. The SICD likewise nullified the
expulsion of Bernas from the corporation and the sale of his share at the public auction.

ISSUES:

Whether or not the December 1997 Special Stockholders meeting is invalid;


Whether or not the subsequent stockholders meeting in 1998, 1999 and 2000 should
be nullified?

HELD:

1. Yes.

Under Section 28 of the Corporation Code, for removal of directors or trustees, it is


provided that such removal may only be done by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation be a
non-stock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote:
Provided, That such removal shall take place either at a regular meeting of the corporation or
at a special meeting called for the purpose.

Corollarily, the pertinent provisions of MSC by-laws provide that the annual meeting
of stockholders shall be held every third Monday of April of every year. And special meetings
shall be held when called by the President or by the Board of Directors or upon written
request of the stockholders representing not less than one hundred (100) shares. The Secretary
is tasked to give notices of all meeting of the Board and of the stockholders, certify as to
quorum at meetings among others.

Textually, only the President and the Board of Directors are authorized by the by-laws
to call a special meeting. In cases where the person authorized to call a meeting refuses,
fails or neglects to call a meeting, then the stockholders representing at least 100 shares,
upon written request, may file a petition to call a special stockholders meeting.

In the instant case, there is no dispute that the December 1997 Special Stockholders
Meeting was called neither by the President nor by the Board of Directors but by the
MSCOC. While the MSCOC, as its name suggests, is created for the purpose of overseeing
the affairs of the corporation, nowhere in the by-laws does it state that it is authorized to
exercise corporate powers, such as the power to call a special meeting, solely vested by law
and the MSC by-laws on the President or the Board of Directors.

Relative to the powers of the Board of Directors, nowhere in the Corporation


Code or in the MSC by-laws can it be gathered that the Oversight Committee is
authorized to step in wherever there is breach of fiduciary duty and call a special
meeting for the purpose of removing the existing officers and electing their replacements
even if such call was made upon the request of shareholders. Needless to say, the MSCOC

Page 73 of 93
is neither empowered by law nor the MSC by-laws to call a meeting and the subsequent
ratification made by the stockholders did not cure the substantive infirmity, the defect having
set in at the time the void act was done. The defect goes into the very authority of the persons
who made the call for the meeting. It is apt to recall that illegal acts of a corporation which
contemplate the doing of an act which is contrary to law, morals or public order, or
contravenes some rules of public policy or public duty, are, like similar transactions between
individuals, void. They cannot serve as basis for a court action, nor acquire validity by
performance, ratification or estoppel. The same principle can apply in the present case. The
void election of December 1997 cannot be ratified by the subsequent Annual Stockholders
Meeting.

A distinction should be made between corporate acts or contracts which are illegal and
those which are merely ultra vires. The former contemplates the doing of an act which are
contrary to law, morals or public policy or public duty, and are, like similar transactions
between individuals, void. They cannot serve as basis of a court action nor acquire validity
by performance, ratification or estoppel. Mere ultra vires acts, on the other hand, or those
which are not illegal or void ab initio, but are not merely within the scope of the articles of
incorporation, are merely voidable and may become binding and enforceable when ratified by
the stockholders. The December 1997 Meeting is void ab initio and cannot be validated.

Consequently, such Special Stockholders Meeting called by the Oversight Committee


cannot have any legal effect. The removal of the Bernas Group, as well as the election of the
Cinco Group, effected by the assembly in that improperly called meeting is void, and since
the Cinco Group has no legal right to sit in the board, their subsequent acts of expelling
Bernas from the club and the selling of his shares at the public auction, are likewise invalid.

LEON J. LAMBERT
vs.
T. J. FOX
1914 Jan 29, G.R. No. 7991

FACTS:

Due to financial crisis the petitioner and the defendant were able to acquire the bulk of
the stocks of John R. Edgar & Co. as the latters creditors. Hence, upon incorporating said
company, the parties entered into an agreement that either of them will not sell or transfer
their respective shares till after one year from the date of agreement. However, less than a
year, defendant Fox sold his stock in the said corporation to E. D. McCullough of the firm of
E. C. McCullough & Co. of Manila, a strong competitor of the said John R. Edgar & Co., Inc.
This sale was made by the defendant against the protest of the plaintiff and with the warning
that he would be held liable under the contract hereinabove set forth and in accordance with
its terms. In fact, the defendant Fox offered to sell his shares of stock to the plaintiff for the

Page 74 of 93
same sum that McCullough was paying for them less P1, 000, the penalty specified in the
contract.
The trial Court rendered judgment in favor of defendant.

ISSUE:

Whether or not the stipulation not to sell is valid.

RULING:

YES.

The suspension of the power to sell has a beneficial purpose, results in the protection
of the corporation as well as of the individual parties to the contract, and is reasonable as to
the length of time of the suspension.
The intention of parties to a contract must be determined, in the first instance, from the
words of the contract itself. It is to be presumed that persons mean what they say when they
speak plain English. Interpretation and construction should by the instruments last resorted to
by a court in determining what the parties agreed to. Where the language used by the parties is
plain, then construction and interpretation are unnecessary and, if used, result in making a
contract for the parties.
In this jurisdiction, there is no difference between a penalty and liquidated damages,
so far as legal results are concerned. Whatever differences exists between them as a matter of
language, they are treated the same legally. In either case the party to whom payment is to be
made is entitled to recover the sum stipulated without the necessity of proving damages.
Indeed one of the primary purposes in fixing a penalty or in liquidating damages is to avoid
such necessity.

How Vacancy filled


VALLE VERDE COUNTRY CLUB, INC.
vs.
VICTOR AFRICA
G.R. No. 151969
September 4, 2009

FACTS:
On February 27, 1996, during the Annual Stockholders Meeting of petitioner Valle
Verde Country Club, Inc. (VVCC), the following were elected as members of the VVCC
Board of Directors: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal
(Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee,
Augusto Sunico, and Ray Gamboa. In the years 1997, 1998, 1999, 2000, and 2001, however,

Page 75 of 93
the requisite quorum for the holding of the stockholders meeting could not be
obtained. Consequently, the above-named directors continued to serve in the VVCC Board in
a hold-over capacity. On September 1, 1998, Dinglasan resigned from his position as member
of the VVCC Board. In a meeting held on October 6, 1998, the remaining directors, still
constituting a quorum of VVCCs nine-member board, elected Eric Roxas (Roxas) to fill in the
vacancy created by the resignation of Dinglasan. A year later, or on November 10, 1998,
Makalintal also resigned as member of the VVCC Board. He was replaced by Jose Ramirez
(Ramirez), who was elected by the remaining members of the VVCC Board on March 6,
2001. Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and
Ramirez as members of the VVCC Board with the Securities and Exchange Commission
(SEC) and the Regional Trial Court (RTC), respectively,
Africa alleged that the election of Roxas was contrary to Section 29, in relation to
Section 23, of the Corporation Code of the Philippines (Corporation Code). Africa claimed
that a year after Makalintals election as member of the VVCC Board in 1996, his
[Makalintals] term as well as those of the other members of the VVCC Board should be
considered to have already expired. Thus, according to Africa, the resulting vacancy should
have been filled by the stockholders in a regular or special meeting called for that purpose,
and not by the remaining members of the VVCC Board, as was done in this case.
Africa additionally contends that for the members to exercise the authority to fill in vacancies
in the board of directors, Section 29 requires, among others, that there should be an unexpired
term during which the successor-member shall serve. Since Makalintals term had already
expired with the lapse of the one-year term provided in Section 23, there is no more unexpired
term during which Ramirez could serve.
ISSUE:
Whether or not the remaining directors of a corporations Board, still constituting a
quorum, can elect another director to fill in a vacancy caused by the resignation of a hold-over
director?
HELD:
Section 23 of the Corporation Code states that term of the members of the board of
directors shall be only for one year; their term expires one year after election to the office.
Thus, when an incumbent member of the board of directors continues to serve in a holdover
capacity, it implies that the office has a fixed term, which has expired, and the incumbent is
holding the succeeding term.

After the lapse of one year from his election as member of the VVCC Board in 1996,
Makalintals term of office is deemed to have already expired. That he continued to serve in
the VVCC Board in a holdover capacity cannot be considered as extending his term. To be
precise, Makalintals term of office began in 1996 and expired in 1997, but, by virtue of the
holdover doctrine in Section 23 of the Corporation Code, he continued to hold office until his
resignation on November 10, 1998. This holdover period, however, is not to be considered as
part of his term, which, as declared, had already expired.

Page 76 of 93
With the expiration of Makalintals term of office, a vacancy resulted which, by the
terms of Section 29of the Corporation Code, must be filled by the stockholders of VVCC in a
regular or special meeting called for the purpose. To assume as VVCC does that the vacancy
is caused by Makalintals resignation in 1998, not by the expiration of his term in 1997, is both
illogical and unreasonable. His resignation as a holdover director did not change the nature of
the vacancy; the vacancy due to the expiration of Makalintals term had been created long
before his resignation.

GABRIEL C. SINGSON, et al.


vs.
COMMISSION ON AUDIT
G.R. No. 159355
August 9, 2010

FACTS:

Petitioners are the members of the Board of Philippine International Convention


Center, Inc. (PICCI). By virtue of the PICCI By-Laws, petitioners were authorized to
receive P1,000.00 per diem each for every meeting attended. An amended resolution further
granted the Members of the additional monthly RATA, in the amount of P1,500.00, to each of
the petitioners. However, payment for such grants were denied. The disallowance was
questioned but it was upheld by herein respondent. Hence this petition.

Page 77 of 93
ISSUE:

Whether or not the grant of the compensation as well as the monthly RATA are valid.

RULING:

NO.

Section 30 of the Corporation Code, which authorizes the stockholders to grant


compensation to its directors, states: In the absence of any provision in the by-laws fixing
their compensation, the directors shall not receive any compensation, as such directors, except
for reasonable per diems; Provided, however, that any such compensation (other than per
diems) may be granted to directors by the vote of the stockholders representing at least a
majority of the outstanding capital stock at a regular or special stockholders meeting. In no
case shall the total yearly compensation of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the corporation during the preceding year.
From this, it is clear that the directors of a corporation shall not receive any
compensation for being members of the board of directors, except for reasonable per diems.
The two instances where the directors are to be entitled to compensation shall be when it is
fixed by the corporations by-laws or when the stockholders, representing at least a majority
of the outstanding capital stock, vote to grant the same at a regular or special stockholders
meeting, subject to the qualification that, in any of the two situations, the total yearly
compensation of directors, as such directors, shall in no case exceed ten (10%) percent of the
net income before income tax of the corporation during the preceding year.
In this regard, the Court upholds the findings of respondent that petitioners right to
compensation as members of the PICCI Board of Directors is limited only to per diem
of P1,000.00 for every meeting attended, by virtue of the PICCI By-Laws.

How Compensated

WESTERN INSTITUTE OF TECHNOLOGY, INC.,


vs.
RICARDO T. SALAS
GR no. 113032
August 21, 1997

FACTS:

Western Institute of Technology (WIT) is a stock corporation engaged in the operation,


among others, of an educational institution. The private respondents, belonging to the same
family, or majority and controlling members of the board of trustees of the corporation.

Page 78 of 93
On March 30, 1986, Resolution No. 48 s. 1986 was passed. On the motion of Mr.
Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it was
unanimously resolved that:The Officers of the Corporation be granted monthly compensation
for services rendered as follows: Chairman - P9,000.00/month, Vice-Chairman -
P3,500.00/month, Corporate Treasurer - P3,500.00/month and Corporate Secretary -
P3,500.00/month, retroactive June 1, 1985 and the ten percentum of the net profits shall be
distributed equally among the ten members of the Board of Trustees. This shall amend and
superceed(sic) any previous resolution.

On March 13, 1991, petitioners filed an affidavit complaint against private


respondents for falsification of a public document under article 171 of the revised penal code
and estafa under article 315. In both charges, the respondents were acquitted. Petitioners
would like the private respondents to be held civilly liable. They base their claim on the
alleged illegal issuance by private respondents of the aforementioned resolution, ordering the
disbursement of corporate funds in the amount of P186,470.70 representing the retroactive
compensation as of June 1,1985 in favor of the private respondents, board members of WIT,
plus, P1,453,970 for the subsequent collective salaries of private respondent every 15th and
30th of the month until the filing of the criminal complaints against them. Petitioners maintain
that this grant if compensation to private respondents is proscribe under Section 30 of the
Corporate Code.

ISSUE:

Whether or not the grant of compensation pursuant to the board resolution violates the
Corporation Code

HELD:

There is no argument that directors or trustees, as the case may be, are not entitled to
salary or other compensation when they perform nothing more than the usual and ordinary
duties of their office. This rule is founded upon a presumption that directors /trustees render
service gratuitously and that the return upon their shares adequately furnishes the motives for
service, without compensation[9]Under the foregoing section, there are only two (2) ways by
which members of the board can be granted compensation apart from reasonable per diems:
(1) when there is a provision in the by-laws fixing their compensation; and (2) when the
stockholders representing a majority of the outstanding capital stock at a regular or special
stockholders meeting agree to give it to them.

This proscription, however, against granting compensation to directors/trustees of a


corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30
which states: xxx [T]he directors shall not receive any compensation, as such directors, xxx.
The phrase as such directors is not without significance for it delimits the scope of the
prohibition to compensation given to them for services performed purely in their capacity as

Page 79 of 93
directors or trustees.

Clearly, therefore , the prohibition with respect to granting compensation to corporate


directors/trustees as such under Section 30 is not violated in this particular case.
Consequently, the last sentence of Section 30 which provides:
xxx xxx. In no case shall the total yearly compensation of directors, as such directors, exceed
ten (10%) percent of the net income before income taxof the corporation during the preceding
year. [Underscoring ours] It does not likewise find application in this case since the
compensation is being given to private respondents in their capacity as officers of WIT and
not as board members.

CENTRAL COOPERATIVE EXCHANGE, INC.,


vs.
CONCORDIO TIBE, SR. and THE HONORABLE COURT OF APPEALS
G.R. No. L-27972
June 30, 1970

FACTS:

Petitioner is a national, federation of farmers cooperative marketing associations or


FACOMAS located all throughout the country. Its single majority stockholder is the former
Agricultural Credit and Cooperative Financing Administration, now known as Agricultural
Credit Administration or ACA. As member of the petitioners board of directors from May
b1958 to May 1960, representing FACOMAS in Eastern Visayas, respondent Concordio Tibe

Page 80 of 93
Sr. collected from petitioner cash advances amounting to P5,668.00, with this amount,
respondent admitted that he had already liquidated P3,317.25, leaving the remainder still to be
accounted for. Respondent also admitted to have drawn several sums, amounting to
P14,436.95, representing commutable diems for attending meetings at the Board of Directors
in Manila, transportation expenses for FACOMA visitations, representation expenses, and
commutable discretionary funds. All funds was disbursed with the approval of General
manager, treasurer, and auditor of petitioner.

ISSUE:
Whether or not the board of directors of the petitioner had the power and authority to
adopt various resolutions which appropriated funds of the corporation for members of the
board?

RULING:

The court ruled that the questioned resolutions are contrary to the buy-laws of the
corporation and are not within the power of the board of directors to enact. The By-laws
explicitly reserved to stockholders the power to determine the compensation of members of
the board of directors, and the stockholders did restrict such compensation to actual
transportation expenses plus the per diems of P30.00 and actual expenses while waiting.
Respondent being a director of the Corporation admitted that during his term, he collected the
sums of money appropriated in and pursuant to the board resolutions. That even without the
express reservation of said power, the directors are not entitled to compensation. The
directors, when they assigned themselves, additional duties such as visitation acted within
their power, but by voting among themselves compensation for such additional duties, they
have indeed acted in excess of the authority given to them.

LINGAYEN GULF ELECTRIC POWER COMPANY, INC.,


vs.
IRINEO BALTAZAR,
G.R. No. L-4824
June 30, 1953

FACTS:
The plaintiff, Lingayen Gulf Electric Power Company is a domestic corporation with
an authorized capital stock of P300,000 divided into 3,000 shares with a par value of P100 per
share. The defendant, Irineo Baltazar appears to have subscribed for 600 shares on account of
which he had paid upon the organization of the corporation the sum of P15,000. After
incorporation, the defendant made further payments on account of his subscription, leaving a
balance of P18,500 unpaid for, which amount, the plaintiff now claims in this action.

Page 81 of 93
On July 23, 1946, a majority of the stockholders of the corporation held a meeting and
adopted a stockholders' resolution and was agreed to call the balance of all unpaid subscribed
capital stock as of July 23, 1946, the first 50% payable within 60 days beginning August 1,
1946, and the remaining 50% payable within 60 days beginning October 1, 1946. The
resolution also provided, that all unpaid subscription after the due dates of both calls would be
subject to 12% interest per annum. Lastly, the resolution provided, that after the expiration of
60 days' grace which would be on December 1, 1946, for the first call, and on February 1,
1947, for the second call, all subscribed stocks remaining unpaid would revert to the
corporation.
On September 22, 1946, the plaintiff corporation wrote a letter to the defendant
reminding him that the first 50% of his unpaid subscription would be due on October 1, 1946.
The defendant answered on September 25, 1946, asking the corporation that he be allowed to
pay his unpaid subscription by February 1, 1947. In his answer, the defendant also agreed that
if he could not pay the balance of his subscription by February 1, 1947, his unpaid
subscription would be reverted to the corporation.
On December 19, 1947, the defendant wrote another letter to the members of the
Board of Directors, offering to withdraw completely from the corporation by selling out to the
corporation all his shares of stock in the total amount of P23,000. Apparently this offer of the
defendant was left unacted upon by the plaintiff.
On April 17, 1948, the Board of Directors held a meeting, and adopted a Resolution
which in effect set aside the stockholders resolution on the ground that it was null and void.
It was admitted by the defendant that he received notice from the Secretary-Treasurer of the
company, demanding payment of the unpaid balance of his subscription. It was agreed by the
parties that the call of the Board of Directors was not published in a newspaper of general
circulation as required by section 40 of the Corporation Law.
On September 28, 1949, the legal counsel of the plaintiff corporation wrote a letter to
the defendant, demanding the payment of the unpaid balance of his subscription amounting to
P18,500. Copy of this letter was sent by registered mail to the defendant on September 29,
1949. The defendant ignored the said demand.
ISSUE:
Is the defendant entitled to compensation as president of the plaintiff corporation?
HELD:
We agree with the lower court that the law requires that notice of any call for the
payment of unpaid subscription should be made not only personally but also by publication.
This is clear from the provisions of section 40 of the Corporation Law, Act No. 1459, as
amended.
As regards the compensation of President claimed by defendant and appellant, it is
clear that he is not entitled to the same. The by-laws of the company are silent as to the salary
of the President. And, while resolutions of the incorporators and stockholders provide salaries
for the general manager, secretary-treasurer and other employees, there was no provision for

Page 82 of 93
the salary of the President. On the other hand, other resolutions provide for per diems to be
paid to the President and the directors of each meeting attended, P10 for the President and P8
for each director, which were later increased to P25 and P15, respectively. This leads to the
conclusions that the President and the board of directors were expected to serve without
salary, and that the per diems paid to them were sufficient compensation for their services.
Furthermore, for defendant's several years of service as President and up to the filing of the
action against him, he never filed a claim for salary. He thought of claiming it only when this
suit was brought against him.
In conclusion we hold that under the Corporation Law, notice of call for payment for
unpaid subscribed stock must be published, except when the corporation is insolvent, in which
case, payment is immediately demandable. We also rule that release from such payment must
be made by all the stockholders.

Power/Authority of the Board of Directors


AQUILES RIOSA
vs.
TABACO LA SUERTE CORPORATION
G.R. No. 203786
October 23, 2013

FACTS:
On February 26, 2002, petitioner Aquiles Riosa (Aquiles) filed his Complaint for
Annulment/Declaration of Nullity of Deed of Absolute Sale and Transfer Certificate of Title,
Reconveyance and Damages against respondent Tabaco La Suerte Corporation (La Suerte)
before the RTC.

Page 83 of 93
In his complaint, Aquiles alleged that he was the owner and in actual possession of a
52-square meter commercial lot situated in Barangay Quinale, Tabaco City, Albay; that he
acquired the said property through a deed of cession and quitclaim executed by his parents,
Pablo Riosa, Sr. and Sabiniana Biron; that he declared the property in his name and had been
religiously paying the realty tax on the said property; that thereafter, his daughter, Annie Lyn
Riosa Zampelis, renovated the commercial building on the lot and introduced improvements
costing no less than P300,000.00; that subsequently, on three (3) occasions, he obtained loans
from Sia Ko Pio in the total amount of P50,000.00; that as a security for the payment of loans,
Sia Ko Pio requested from him a photocopy of the deed of cession and quitclaim; that Sia Ko
Pio presented to him a document purportedly a receipt for the P50,000.00 loan with an
undertaking to pay the total amount of P52,000.00 including the P2,000.00 attorneys fees;
that without reading the document, he affixed his signature thereon; and that in September
2001, to his surprise, he received a letter from La Suerte informing him that the subject lot
was already registered in its name.
Aquiles claimed that by means of fraud, misrepresentation and deceit employed by Sia
Ko Pio, he was made to sign the document which he thought was a receipt and undertaking to
pay the loan, only to find out later that it was a document of sale. Aquiles averred that he did
not appear before the notary public to acknowledge the sale, and that the notary public, a
municipal judge, was not authorized to notarize a deed of conveyance. He further claimed
that he could not have sold the commercial building on the lot as he had no transmissible right
over it, as it was not included in the deed of cession and quitclaim. He, thus, prayed for the
nullification of the deed of sale and certificate of title in the name of La Suerte and the
reconveyance of the subject property to him.4
In its Answer, La Suerte averred that it was the actual and lawful owner of the
commercial property, after purchasing it from Aquiles on December 7, 1990; that it allowed
Aquiles to remain in possession of the property to avoid the ire of his father from whom he
had acquired the property inter vivos, subject to his obligation to vacate the premises anytime
upon demand; that on February 13, 1991, the Register of Deeds of Albay issued Transfer
Certificate of Title (TCT) No. T-80054 covering the subject property in its name; that Aquiles
necessarily undertook the cost of repairs and did not pay rent for using the premises; that
Aquiles transacted with it, through Sia Ko Pio, now deceased, who was then its Chief
Executive Officer; that his opinion that only the land was sold was absurd because the sale of
the principal included its accessories, not to mention that he did not make any reservation at
the time the deed was executed; that it repeatedly asked Aquiles to vacate the premises but to
no avail; that, instead, he tried to renovate the building in 2001 which prompted it to lodge a
complaint with the Office of the Mayor on the ground that the renovation work was without a
building permit; and that Aquiles complaint was barred by prescription, laches, estoppel and
indefeasibility of La Suertes title.
ISSUE:
Whether Tabaco is the real owner of the disputed property?

Page 84 of 93
HELD:
No. As to La Suertes contention that a deed of absolute sale was purportedly executed
by Aquiles in its favor, it failed to adduce convincing evidence to effectively rebut his
consistent claim that he was not aware that what he had signed was already an instrument of
sale, considering his trust and confidence on Sia Ko Pio who was his long-time friend and
former employer.
The fact that the alleged deed of sale indubitably bore Aquiles signature deserves no
evidentiary value there being no consent from him to part with his property. Had he known
that the document presented to him was an instrument of sale, he would not have affixed his
signature on the document. It has been held that the existence of a signed document
purporting to be a contract of sale does not preclude a finding that the contract is invalid when
the evidence shows that there was no meeting of the minds between the seller and buyer.
Indeed, if Aquiles sold the property in favor of La Suerte, he would not have
religiously and continuously paid the real property taxes. Also of note is the fact that his
daughter spent P300,000.00 for the renovation of improvements. More important, La Suerte
did not earlier ask him to transfer the possession thereof to the company. These
uncontroverted attendant circumstances bolster Aquiles positive testimony that he did not sell
the property.

And for said reasons, the CA should not have favorably considered the validity of the deed of
absolute sale absent any written authority from La Suertes board of directors for Sia Ko Pio
to negotiate and purchase Aquiles property on its behalf and to use its money to pay the
purchase price. The Court notes that when Sia Ko Pios son, Juan was presented as an officer
of La Suerte, he admitted that he could not find in the records of the corporation any board
resolution authorizing his father to purchase the disputed property.
Under these provisions, the power to purchase real property is vested in the board of
directors or trustees. While a corporation may appoint agents to negotiate for the purchase of
real property needed by the corporation, the final say will have to be with the board, whose
approval will finalize the transaction. A corporation can only exercise its powers and transact
its business through its board of directors and through its officers and agents when authorized
by a board resolution or its by-laws.
In the case at bench, Sia Ko Pio, although an officer of La Suerte, had no authority
from its Board of Directors to enter into a contract of sale of Aquiles property. It is, thus,
clear that the loan obtained by Aquiles from Sia Ko Pio was a personal loan from the latter,
not a transaction between Aquiles and La Suerte. There was no evidence to show that Sia Ko
Pio was clothed with authority to use his personal fund for the benefit of La Suerte.
Evidently, La Suerte was never in the picture.

Page 85 of 93
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., et al.
vs.
VICTOR O. RAMOS, Secretary, Department of Environment and Natural Resources
(DENR); HORACIO RAMOS, Director, Mines and Geosciences Bureau (MGB-DENR);
RUBEN TORRES, Executive Secretary; and WMC (PHIL.), INC.
G.R. No. 127882. December 1, 2004

FACTS:

On July 25, 1987, then President Corazon C. Aquino issued Executive Order (E.O.)
No. 279authorizing the DENR Secretary to accept, consider and evaluate proposals from
foreign-owned corporations or foreign investors for contracts or agreements involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, which, upon appropriate recommendation of the Secretary, the President may
execute with the foreign proponent.

Page 86 of 93
Subsequently, then President Fidel V. Ramos approved R.A. No. 7942 to "govern the
exploration, development, utilization and processing of all mineral resources."R.A. No. 7942
defines the modes of mineral agreements for mining operations,outlines the procedure for
their filing and approval, assignment/transferand withdrawal, and fixes their terms. Similar
provisions govern financial or technical assistance agreements.
On August 15, 1995, then DENR Secretary Victor O. Ramos issued DENR Administrative
Order (DAO) No. 95-23, s. 1995, otherwise known as the Implementing Rules and
Regulations of R.A. No. 7942. This was later repealed by DAO No. 96-40, s. 1996 which was
adopted on December 20, 1996.
On January 10, 1997, counsels for petitioners sent a letter to the DENR Secretary
demanding that the DENR stop the implementation of R.A. No. 7942 and DAO No. 96-40.

ISSUE:

Whether or not the law in force when the WMC FTAA was executed, not come into
effect.

RULING:

YES.

It bears noting that there is nothing in E.O. No. 200 that prevents a law from taking
effect on a date other than even before the 15-day period after its publication. Where a law
provides for its own date of effectivity, such date prevails over that prescribed by E.O. No.
200. Indeed, this is the very essence of the phrase "unless it is otherwise provided" in Section
1 thereof. Section 1, E.O. No. 200, therefore, applies only when a statute does not provide for
its own date of effectivity.
As noted, "service contracts" is a term that assumes different meanings to different
people. The commissioners may have been using the term loosely, and not in its technical and
legal sense, to refer, in general, to agreements concerning natural resources entered into by the
Government with foreign corporations. These loose statements do not necessarily translate to
the adoption of the 1973 Constitution provision allowing service contracts.
In any case, the constitutional provision allowing the President to enter into FTAAs
with foreign-owned corporations is an exception to the rule that participation in the nation's
natural resources is reserved exclusively to Filipinos. Accordingly, such provision must be
construed strictly against their enjoyment by non-Filipinos. As Commissioner Villegas
emphasized, the provision is "very restrictive."Commissioner Nolledo also remarked that
"entering into service contracts is an exception to the rule on protection of natural resources
for the interest of the nation and, therefore, being an exception, it should be subject, whenever
possible, to stringent rules." Indeed, exceptions should be strictly but reasonably construed.

Page 87 of 93
SHIPSIDE INCORPORATED
vs.
THE HON. COURT OF APPEALS
G.R. No. 143377
February 20, 2001

FACTS:

In 1958, Original Certificate of Title No. 0-381 was issued in favor of Rafael Galvez,
over four parcels of land - Lot 1 with 6,571 square meters; Lot 2, with 16,777 square meters;
Lot 3 with 1,583 square meters; and Lot 4, with 508 square meters. In 1960, Lots No. 1 and 4
were conveyed by Rafael Galvez in favor of Filipina Mamaril, Cleopatra Llana, Regina
Bustos, and Erlinda Balatbat in a deed of sale which was inscribed as Entry No. 9115 OCT

Page 88 of 93
No.0-381 on August 10, 1960. Consequently, Transfer Certificate No. T-4304 was issued in
favor of the buyers covering Lots No. 1 and 4.
Mamaril, et al. sold Lots No. 1 and 4 to Lepanto Consolidated Mining Company. The
deed of sale covering the aforesaid property was inscribed as Entry No. 9173 on TCT No. T-
4304. Subsequently, Transfer Certificate No. T-4314 was issued in the name of Lepanto
Consolidated Mining Company as owner of Lots No. 1 and 4. Unknown to Lepanto
Consolidated Mining Company, the Court of First Instance of La Union, issued an Order in
Land Registration Case No. N- 361 (LRC Record No. N-14012) entitled "Rafael Galvez,
Applicant, Eliza Bustos, et al., Parties-In-Interest; Republic of the Philippines, Movant"
declaring OCT No. 0-381 of the Registry of Deeds for the Province of La Union issued in the
name of Rafael Galvez, null and void, and ordered the cancellation thereof.
After twenty four long years, the Office of the Solicitor General received a letter dated
January 11, 1999 from Mr. Victor G. Floresca, Vice-President, John Hay Poro Point
Development Corporation, stating that the aforementioned orders and decision of the trial
court in L.R.C. No. N-361 have not been executed by the Register of Deeds, San Fernando,
La Union despite receipt of the writ of execution.
On April 21, 1999, the Office of the Solicitor General filed a complaint for revival of
judgment and cancellation of titles before the Regional Trial Court of the First Judicial Region
(Branch 26, San Fernando, La Union) docketed therein as Civil Case No. 6346 entitled,
"Republic of the Philippines, Plaintiff, versus Heirs of Rafael Galvez, represented by Teresita
Tan, Reynaldo Mamaril, Elisa Bustos, Erlinda Balatbat, Regina Bustos, Shipside Incorporated
and the Register of Deeds of La Union, Defendants."

ISSUE:
Whether or not Mr. Balbin had no authority to sign the petition despite the clarity of
laws, jurisprudence and Secretary's certificate to the contrary?

HELD:

Lorenzo Balbin, the resident manager for petitioner, who was the signatory in the
verification and certification on non-forum shopping, failed to show proof that he was
authorized by petitioner's board of directors to file such a petition.
A corporation, such as petitioner, has no power except those expressly conferred on it
by the Corporation Code and those that are implied or incidental to its existence. In turn, a
corporation exercises said powers through its board of directors and/or its duly authorized
officers and agents. Thus, it has been observed that the power of a corporation to sue and be
sued in any court is lodged with the board of directors that exercises its corporate powers
(Premium Marble Resources, Inc. v. CA, 264 SCRA 11 [1996]). In turn, physical acts of the
corporation, like the signing of documents, can be performed only by natural persons duly
authorized for the purpose by corporate by-laws or by a specific act of the board of directors.

Page 89 of 93
It is undisputed that at the time petitioner's Resident Manager Balbin filed the petition,
there was no proof attached thereto that Balbin was authorized to sign the verification and
non-forum shopping certification therein, as a consequence of which the petition was
dismissed by the Court of Appeals. However, subsequent to such dismissal, petitioner filed a
motion for reconsideration, attaching to said motion a certificate issued by its "board secretary
stating that on October 11, 1999, or ten days prior to the filing of the petition, Balbin had been
authorized by petitioner's board of directors to file said petition.

ABS-CBN BROADCASTING CORPORATION


vs.
HONORABLE COURT OF APPEALS
G.R. No. 128690 January 21, 1999

FACTS:

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A)


whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Viva, through
defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a
list of three (3) film packages (36 title) from which ABS-CBN may exercise its right of first
refusal under the afore-said agreement. ABS-CBN, however through Mrs. Concio, can tick off
only ten (10) titles from the list and therefore did not accept said list. The titles ticked off by
Mrs. Concio are not the subject of the case at bar except the film Maging Sino Ka Man. On

Page 90 of 93
February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list
consisting of 52 original movie titles (i.e., not yet aired on television) including the 14 titles
subject of the present case, as well as 104 re-runs (previously aired on television) from which
ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-
CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of
which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots. On April
2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at
the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of VIVA. What
transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that
he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to
fourteen (14) films for a total consideration of P36 million; that he allegedly put this
agreement as to the price and number of films in a napkin and signed it and gave it to Mr. Del
Rosario. On the other hand. Del Rosario denied having made any agreement with Lopez
regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote
something; and insisted that what he and Lopez discussed at the lunch meeting was Vivas film
package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr.
Lopez promising to make a counter proposal which came in the form of a proposal contract
Annex C of the complaint. On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS
Senior vice-president for Finance discussed the terms and conditions of Vivas offer to sell the
104 films, after the rejection of the same package by ABS-CBN. On April 29, 1992, after the
rejection of ABS-CBN and following several negotiations and meetings defendant Del
Rosario and Vivas President Teresita Cruz, in consideration of P60 million, signed a letter of
agreement dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-produced
and/or acquired films including the fourteen (14) films subject of the present case. On 27 May
1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for
a writ of preliminary injunction and/or temporary restraining order against private respondents
Republic Broadcasting Corporation (hereafter RBS), Viva Production (hereafter VIVA), and
Vicente del Rosario.

ISSUE:

Whether the contract was perfected?

HELD:

Yes. In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer
hence, they underwent period of bargaining.ABS-CBN then formalized its counter-proposals
or counter-offer in a draft contract. VIVA through its Board of Directors, rejected such
counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the counter-
offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario
had the specific authority to do so. Under the Corporation Code, unless otherwise provided by
said Code, corporate powers, such as the power to enter into contracts, are exercised by the
Board of Directors. However, the Board may delegate such powers to either an executive
committee or officials or contracted managers. The delegation, except for the executive

Page 91 of 93
committee, must be for specific purposes. Delegation to officers makes the latter agents of the
corporation; accordingly, the general rules of agency as to the binding effects of their acts
would apply. For such officers to be deemed fully clothed by the corporation to exercise a
power of the Board, the latter must specially authorize them to do so. that Del Rosario did not
have the authority to accept ABS-CBNs counter-offer was best evidenced by his submission
of the draft contract to VIVAs Board of Directors for the latters approval. In any event, there
was between Del Rosario and Lopez III no meeting of minds.

The testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no
authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors
approved it. The complaint, in fact, alleges that Mr. Del Rosario is the Executive Producer of
defendant Viva which is a corporation. As a mere agent of Viva, Del Rosario could not bind
Viva unless what he did is ratified by its Directors. As a mere agent, recognized as such by
plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his inclusion
as party defendant has no legal basis. The testimony of Mr. Lopez and the allegations in the
complaint are clear admissions that what was supposed to have been agreed upon at the
Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it
should be because corporate power to enter into a contract is lodged in the Board of Directors.
(Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever
agreement Lopez and Del Rosario arrived at could not ripen into a valid binding upon Viva.
The evidence adduced shows that the Board of Directors of Viva rejected Exhibit C and
insisted that the film package for 104 films be maintained. The contention that ABS-CBN had
yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film
Exhibition Agreement and that the meeting between Lopez and Del Rosario was a
continuation of said previous contract is untenable. As observed by the trial court, ABS-CBNs
right of first refusal had already been exercised when Ms. Concio wrote to Viva ticking off ten
films.

BA SAVINGS BANK
vs.
ROGER T. SIA, TACIANA U. SIA and JOHN DOE
G.R. No. 131214, July 27, 2000

FACTS:

A petition for certiorari was filed by herein petitioner bank. However, the CA denied
due course the same on the ground that the certificate of non-forum shopping was signed by a
lawyer. A Motion for Reconsideration was subsequently filed by the petitioner, attached to
which was a BA Savings Bank Corporate Secretarys Certificate. The Certificate showed that
the petitioners Board of Directors approved a Resolution on May 21, 1996, authorizing the
petitioners lawyers to represent it in any action or proceeding before any court, tribunal or
agency; and to sign, execute and deliver the Certificate of Non-forum Shopping, among
others. Said motion was denied on the ground that Supreme Court Revised Circular No. 28-91

Page 92 of 93
requires that it is the petitioner, not the counsel, who must certify under oath to all of the facts
and undertakings required therein.

ISSUE:

Whether or not the CA was correct.

RULING:

YES.

A corporation exercises powers through its board of directors and/or its duly
authorized officers and agents. Physical acts, like the signing of documents, can be performed
only by natural persons duly authorized for the purpose by corporate bylaws or by a specific
act of the board of directors. In this case, the corporations board of directors issued a
Resolution specifically authorizing its lawyers to act as their agents in any action or
proceeding before the Supreme Court, the Court of Appeals, or any other tribunal or agency
and to sign, execute and deliver in connection therewith the necessary pleadings, motions,
verification, affidavit of merit, certificate of non-forum shopping and other instruments
necessary for such action and proceeding. The Resolution was sufficient to vest such persons
with the authority to bind the corporation and was specific enough as to the acts they were
empowered to do.

Circular 28-91 requires the parties themselves to sign the certificate of non-forum
shopping. However, such requirement cannot be imposed on artificial persons, like
corporations, for the simple reason that they cannot personally do the task themselves. In this
case, the corporation very well exercised its power to authorize a representative to act on its
behalf.

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