ABOITIZ EQUITY VENTURES (AEV) versus VICTOR S. CHIONGBIAN, BENJAMIN D. GOTHONG, and CARLOS A. GOTHONG LINES, INC.

(CAGLI);
G.R. No.197530 July 9, 2014
TOPIC: Corporate Juridical Personality > 1. Doctrine of Separate Juridical Personality; 2. Doctrine of Piercing the Corporate Veil.
FACTS:
On January 8, 1996, Aboitiz Shipping Corporation ("ASC"), principally owned by the Aboitiz family, CAGLI, principally owned by the Gothong
family, and William Lines, Inc. ("WLI"), principally owned by the Chiongbian family, entered into an agreement whereby ASC and CAGLI would transfer
their shipping assets to WLI in exchange for WLI’s shares of stock. WLI, in turn, would run their merged shipping businesses and, henceforth, be known
as WG&A, Inc. ("WG&A"). Sec. 11.06 of the Agreement required all disputes arising out of or in connection with the Agreement Tobe settled by
Arbitration. Among the attachments to the Agreement was Annex SL-V. Annex SL-V confirmed WLI’s commitment to acquire certain inventories of
CAGLI. These inventories would have a total aggregate value of, at most, ₱400 million. Annex SL-V also specifically stated that such acquisition was
"pursuant to the Agreement." Pursuant to Annex SL-V, inventories were transferred from CAGLI to WLI. These inventories were assessed to have a
value of 514 million, which was later adjusted to 558.89 million. Of the total amount of 558.89 million, "CAGLI was paid the amount of 400 Million." In
addition to the payment of 400 million, petitioner Aboitiz Equity Ventures ("AEV") noted that WG&A shares with a book value of 38.5 million were
transferred to CAGLI. As there was still a balance, in 2001, CAGLI sent WG&A (the renamed WLI) demand letters "for the return of or the payment for
the excess inventories." AEV alleged that to satisfy CAGLI’s demand, WLI/WG&A returned inventories amounting to 120.04 million. As proof of this, AEV
attached copies of delivery receipts signed by CAGLI’s representatives.

Sometime in 2002, the Chiongbian and Gothong families decided to leave the WG&A enterprise and sell their interest in WG&A to the Aboitiz
family. As such, a share purchase agreement ("SPA") was entered into by petitioner AEV and the respective shareholders groups of the Chiongbians and
Gothongs. In the SPA, AEV agreed to purchase the Chiongbian group's 40.61% share and the Gothong group's 20.66% share in WG&A’s issued and
outstanding stock. Section 6.5 of the SPA provided for arbitration as the mode of settling any dispute arising from the SPA. Section 6.8 of the SPA
further provided that the Agreement (of January 8, 1996) shall be deemed terminated except its Annex SL-V. As part of the SPA, the parties entered
into an Escrow Agreement whereby ING Bank N.V.-Manila Branch was to take custody of the shares subject of the SPA. Section 14.7 of the Escrow
Agreement provided that all disputes arising from it shall be settled through arbitration. As a result of the SPA, AEV became a stockholder of WG&A.
Subsequently, WG&A was renamed Aboitiz Transport Shipping Corporation ("ATSC").

Petitioner AEV alleged that in 2008, CAGLI resumed making demands despite having already received 120.04 million worth of excess
inventories. CAGLI initially made its demand to ATSC (the renamed WLI/WG&A). As alleged by AEV, however, CAGLI subsequently resorted to a
"shotgun approach" and directed its subsequent demand letters to AEV as well as to FCLC (a company related to respondent Chiongbian). AEV
responded to CAGLI’s demands through several letters. AEV rebuffed CAGLI's demands noting that: (1) CAGLI already received the excess inventories;
(2) it was not a party to CAGLI's claim as it had a personality distinct from WLI/WG&A/ATSC; and (3) CAGLI's claim was already barred by prescription.
In a reply-letter, CAGLI claimed that it was unaware of the delivery to it of the excess inventories and asked for copies of the corresponding delivery
receipts. CAGLI threatened that unless it received proof of payment or return of excess inventories having been made on or before March 31, 1996, it
would pursue arbitration. In letters written for AEV, it was noted that the excess inventories were delivered to GT Ferry Warehouse. Attached to these
letters were a listing and/or samples of the corresponding delivery receipts. In these letters it was also noted that the amount of excess inventories
delivered (120.04 million) was actually in excess of the value of the supposedly unreturned inventories (119.89 million). Thus, it was pointed out that it
was CAGLI which was liable to return the difference between 120.04 million and 119.89 million.

Its claims not having been satisfied, CAGLI filed on November 6, 2008 the first of two applications for arbitration against respondent
Chiongbian, ATSC, ASC, and petitioner AEV, before the Cebu City Regional Trial Court, Branch 20. In response, AEV filed a motion to dismiss and argued
that CAGLI failed to state a cause of action as there was no agreement to arbitrate between CAGLI and AEV. Specifically, AEV pointed out that: (1) AEV
was never a party to the January 8, 1996 Agreement or to its Annex SL-V; (2) while AEV is a party to the SPA and Escrow Agreement, CAGLI's claim
had no connection to either agreement; (3) the unsigned and unexecuted SPA attached to the complaint cannot be a source of any right to arbitrate;
and (4) CAGLI did not say how WLI/WG&A/ATSC's obligation to return the excess inventories can be charged to AEV.

On December 4, 2009, the Cebu City Regional Trial Court, Branch 20 issued an order dismissing the first complaint with respect to AEV. It
sustained AEV’s assertion that there was no agreement binding AEV and CAGLI to arbitrate CAGLI’s claim. Whether by motion for reconsideration,
appeal or other means, CAGLI did not contest this dismissal. On February 26, 2010, the Cebu City Regional Trial Court, Branch 20 issued an order
directing the parties remaining in the first complaint (after the discharge of AEV) to proceed with arbitration. The second complaint was docketed as
Civil Case No. CEB-37004 and was also in view of the return of the same excess inventories subject of the first complaint. On October 28, 2010, AEV
filed a motion to dismiss the second complaint on the following grounds (1) forum shopping; (2) failure to state a cause of action; (3) res judicata; and
(4) litis pendentia. In the first of the two (2) assailed orders dated May 5, 2011, the Cebu City Regional Trial Court, Branch 10 denied AEV's motion to
dismiss.

ISSUES: (specific to the topic)

1. Whether petitioner, Aboitiz Equity Ventures, Inc., is bound by an agreement to arbitrate with Carlos A. Gothong Lines, Inc., with respect to
the latter’s claims for unreturned inventories delivered to William Lines, Inc./WG&A, Inc./Aboitiz Transport System Corporation

RULING: WHEREFORE, the petition is GRANTED. The assailed orders dated May 5, 2011 and June 24, 2011 of the Regional Trial Court, Cebu City,
Branch 10 in Civil Case No. CEB-37004 are declared VOID. The Regional Trial Court, Cebu City, Branch 10 is ordered to DISMISS Civil Case No. CEB-
37004.

1. There is no agreement binding AEV to arbitrate with CAGLI on the latter’s claims arising from Annex SL-V.

For arbitration to be proper, it is imperative that it be grounded on an agreement between the parties. In this petition, not one of the parties
— AEV, CAGLI, Victor S. Chiongbian, and Benjamin D. Gothong — has alleged and/or shown that the controversy is properly the subject of "compulsory
arbitration [as] provided by statute." Thus, the propriety of compelling AEV to submit itself to arbitration must necessarily be founded on contract. Four
(4) distinct contracts have been cited in the present petition:

1. The January 8, 1996 Agreement in which ASC, CAGLI, and WLI merged their shipping enterprises, with WLI (subsequently renamed
WG&A) as the surviving entity. Section 11.06 of this Agreement provided for arbitration as the mechanism for settling all disputes arising
out of or in connection with the Agreement.
 2. Annex SL-V of the Agreement between CAGLI and WLI (and excluded ASC and any other Aboitiz controlled entity), and which confirmed
WLI’s commitment to acquire certain inventories, worth not more than 400 million, of CAGLI. Annex SL-V stated that the acquisition was
"pursuant to the Agreement." It did not contain an arbitration clause.

3. The September 23, 2003 Share Purchase Agreement or SPA in which AEV agreed to purchase the Chiongbian and Gothong groups'
shares in WG&A’s issued and outstanding stock. Section 6.5 of the SPA provided for arbitration as the mode of settling any dispute
arising from the SPA. Section 6.8 of the SPA further provided that the Agreement of January 8, 1996 shall be deemed terminated except
its Annex SL-V.

4. The Escrow Agreement whereby ING Bank N.V.-Manila Branch was to take custody of the shares subject of the SPA. Section 14.7 of the
Escrow Agreement provided that all disputes arising from it shall be settled via arbitration.

Annex SL-V is only between WLI and CAGLI — it necessarily follows that none but WLI/WG&A/ATSC and CAGLI are bound by the terms of
Annex SL-V. It is elementary that contracts are characterized by relativity or privity, that is, that "[c]ontracts take effect only between the parties, their
assigns and heirs." As such, one who is not a party to a contract may not seek relief for such contract’s breach. Likewise, one who is not a party to a
contract may not be held liable for breach of any its terms. While the principle of privity or relativity of contracts acknowledges that contractual
obligations are transmissible to a party’s assigns and heirs, AEV is not WLI’s successor-in-interest. In the period relevant to this petition, the transferee
of the inventories transferred by CAGLI pursuant to Annex SL-V assumed three (3) names: (1) WLI, the original name of the entity that survived the
merger under the January 8, 1996 Agreement; (2) WG&A, the name taken by WLI in the wake of the Agreement; and (3) ATSC, the name taken by
WLI/WG&A in the wake of the SPA. As such, it is now ATSC that is liable under Annex SL-V.

Pursuant to the January 8, 1996 Agreement, the Aboitiz group (via ASC) and the Gothong group (via CAGLI) became stockholders of
WLI/WG&A, along with the Chiongbian group (which initially controlled WLI). This continued until, pursuant to the SPA, the Gothong group and the
Chiongbian group transferred their shares to AEV. With the SPA, AEV became a stockholder of WLI/WG&A, which was subsequently renamed ATSC.
Nonetheless, AEV’s status as ATSC’s stockholder does not subject it to ATSC’s obligations. It is basic that a corporation has a personality separate and
distinct from that of its individual stockholders. Thus, a stockholder does not automatically assume the liabilities of the corporation of which he is a
stockholder. A corporation is an artificial entity created by operation of law. It possesses the right of succession and such powers, attributes, and
properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from that of its stockholders and from that
of other corporations to which it may be connected. As a consequence of its status as a distinct legal entity and as a result of a conscious policy decision
to promote capital formation, a corporation incurs its own liabilities and is legally responsible for payment of its obligations. In other words, by virtue of
the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder. This protection from liability
for shareholders is the principle of limited liability.

In fact, even the ownership by a single stockholder of all or nearly all the capital stock of a corporation is not, in and of itself, a ground for
disregarding a corporation’s separate personality. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not in itself sufficient ground for disregarding the separate corporate personality. A corporation’s authority to act and its liability
for its actions are separate and apart from the individuals who own it. The so-called veil of corporation fiction treats as separate and distinct the affairs
of a corporation and its officers and stockholders. As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason
to the contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons. Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that
may work inequities among members of the corporation internally, involving no rights of the public or third persons. In both instances, there must have
been fraud and proof of it. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.

AEV’s status as ATSC’s stockholder is, in and of itself, insufficient to make AEV liable for ATSC’s obligations. Moreover, the SPA does not
contain any stipulation which makes AEV assume ATSC’s obligations. At no point does the text of Section 6.8 support the position that AEV steps into
the shoes of the obligor under Annex SL-V and assumes its obligations. Neither does Section 6.5 of the SPA suffice to compel AEV to submit itself to
arbitration. While it is true that Section 6.5 mandates arbitration as the mode for settling disputes between the parties to the SPA, Section 6.5 does not
indiscriminately cover any and all disputes which may arise between the parties to the SPA. Rather, Section 6.5 is limited to "dispute[s] arising between
the parties relating to this Agreement [i.e., the SPA]."122 To belabor the point, the obligation which is subject of the present dispute pertains to Annex
SL-V, not to the SPA. That the SPA, in Section 6.8, recognizes the subsistence of Annex SL-V is merely a factual recognition. It does not create new
obligations and does not alter or modify the obligations spelled out in Annex SL-V. AEV was drawn into the present controversy on account of its having
entered into the SPA. This SPA made AEV a stockholder of WLI/WG&A/ATSC. Even then, AEV retained a personality separate and distinct from
WLI/WG&A/ATSC. The SPA did not render AEV personally liable for the obligations of the corporation whose stocks it held. The obligation animating
CAGLI’s desire to arbitrate is rooted in Annex SL-V. Annex SL-V is a contract entirely different from the SPA. It created distinct obligations for distinct
parties. AEV was never a party to Annex SL-V. Rather than pertaining to AEV, Annex SL-V pertained to a different entity: WLI (renamed WG&A then
renamed ATSC). AEV is, thus, not bound by Annex SL-V. On one hand, Annex SL-V does not stipulate that disputes arising from it are to be settled via
arbitration. On the other hand, the SPA requires arbitration as the mode for settling disputes relating to it and recognizes the subsistence of the
obligations under Annex SL-V. But as a separate contract, the mere mention of Annex SL-V in the SPA does not suffice to place Annex SL-V under the
ambit of the SPA or to render it subject to the SPA’s terms, such as the requirement to arbitrate.

Medical Plaza vs. Cullen, 709 SCRA 110

FACTS:
Respondent (Cullen) purchased from Meridien Land Holding, Inc. (MLHI) condominium Unit No. 1201 of the petitioner. Old title was later cancelled and
new title (CCT 64218) was issued in respondent’s name.
On 19 September 2002, petitioner (MPMCC) demanded from Cullen payment for unpaid association dues and assessments claiming a carry-over of
MLHI. Cullen refused claiming they are being religiously paid. Consequently, Cullen was prevented from exercising his right to vote and be
voted during election of MPMCC’s BOD.
When MLHI clarified that his dues had already been settled and upon MPMCC’s failure to explain why is such, he filed a Complaint for Damages against
MPMCC in RTC Makati, acting as a regular court.
MPMCC and MLHI moved to dismiss mainly on the ground of lack of jurisdiction. On 9 September 2009, the RTC dismissed the complaint on the ground
that the action falls within the exclusive jurisdiction of HLURB and that the issues raised are intra-corporate between the corporation and member.
On appeal, the CA reversed RTC decision holding that the controversy is an ordinary civil action for damages within the jurisdiction of regular courts.
When motions for reconsideration was denied, petitioners filed the present petition for review on certiorari under Rule 45 of Rules of Court
ISSUES:
1. Whether or not the controversy is an intra-corporate, not an ordinary action;
2. Which has the jurisdiction over the subject matter, RTC or the HLURB.

RULING:
1.) Yes, the controversy in the present case is an intra-corporate.
In determining whether a dispute constitutes an intra-corporate controversy, the Court uses two tests, namely, the relationship test and the
nature of the controversy test.
An intra-corporate controversy is one which pertains to any of the following relationships:
(1) between the corporation, partnership or association and the public;
(2) between the corporation, partnership or association and the State insofar as its franchise, permit or license to operate is concerned;
(3) between the corporation, partnership or association and its stockholders, partners, members or officers; and
(4) among the stockholders, partners or associates themselves.
Thus, under the relationship test, the existence of any of the above intra-corporate relations makes the case intra-corporate.
Under the nature of the controversy test, "the controversy must not only be rooted in the existence of an intra-corporate relationship,
but must as well pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the corporation." -In other words, jurisdiction should be determined by considering both
the relationship of the parties as well as the nature of the question involved.
Applying the two tests, the court holds that the case involves intra-corporate controversy. It obviously arose from the intra-corporate
relations between the parties, and the questions involved pertain to their rights and obligations under the Corporation Code and matters relating to
the regulation of the corporation.

2.) The intra-corporate dispute between petitioner and respondent is still within the jurisdiction of the RTC sitting as a special
commercial court and not the HLURB.

Republic Act (RA) No. 9904, or the Magna Carta for Homeowners and Homeowners’ Associations, approved on January 7, 2010 and became
effective on July 10, 2010, empowers the HLURB to hear and decide inter-association and/or intra-association controversies or conflicts
concerning homeowners’ associations. However, said law cannot be applied in the present case as it involves a controversy between a
condominium unit owner and a condominium corporation.

While the term association as defined in the law covers homeowners’ associations of other residential real property which is broad enough to
cover a condominium corporation, it does not seem to be the legislative intent. A thorough review of the deliberations of the bicameral
conference committee would show that the lawmakers did not intend to extend the coverage of the law to such kind of association.

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and MCARTHUR MINING, INC.,
Petitioners, vs.REDMONT CONSOLIDATED MINES CORP., G.R. No. 195580\ April 21, 2014

FACTS:

Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and existing under
Philippine laws, took interest in mining and exploring certain areas of the province of Palawan. After inquiring with the Department of Environment and
Natural Resources (DENR), it learned that the areas where it wanted to undertake exploration and mining activities where already covered by Mineral
Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.

Petitioner McArthur Narra and Tesoro, filed an application for an MPSA and Exploration Permit (EP) which was subsequently issued.

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the denial of petitioners’
applications for MPSA.

Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc.
(MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving force behind
petitioners’ filing of the MPSAs over the areas covered by applications since it knows that it can only participate in mining activities through corporations
which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they were likewise
disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.

Petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995.
They stated that their nationality as applicants is immaterial because they also applied for Financial or Technical Assistance Agreements (FTAA)
denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which are granted to foreign-owned corporations.
Nevertheless, they claimed that the issue on nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of
their capital is owned by citizens of the Philippines.

On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. The POA considered petitioners as foreign
corporations being "effectively controlled" by MBMI, a 100% Canadian company and declared their MPSAs null and void.

Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint with the Securities and Exchange
Commission (SEC), seeking the revocation of the certificates for registration of petitioners on the ground that they are foreign-owned or controlled
corporations engaged in mining in violation of Philippine laws.

CA found that there was doubt as to the nationality of petitioners when it realized that petitioners had a common major investor, MBMI, a
corporation composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of
2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws pertaining to the exploitation of natural
resources, the CA used the "grandfather rule" to determine the nationality of petitioners.

In determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding common shareholders.
Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of the petitioners as well as
at least 60% equity interest of other majority shareholders of petitioners through joint venture agreements. The CA found that
through a "web of corporate layering, it is clear that one common controlling investor in all mining corporations involved x x x is
MBMI." Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.

ISSUE:
Whether or not the Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations based on the "Grandfather Rule" is
contrary to law, particularly the express mandate of the Foreign Investments Act of 1991, as amended, and the FIA Rules.

HELD:
No. There are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule.
Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other
laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural resources owned by Filipino citizens, provides:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality (CONTROL TEST), but if the percentage of Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality (GRANDFATHER
RULE). Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital,
respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of
the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as
owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens.

The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a "Philippine National" under Sec.
3 of the FIA does not provide for it. They further claim that the grandfather rule "has been abandoned and is no longer the applicable rule." They also
opined that the last portion of Sec. 3 of the FIA admits the application of a "corporate layering" scheme of corporations. Petitioners claim that the clear
and unambiguous wordings of the statute preclude the court from construing it and prevent the court’s use of discretion in applying the law. They said
that the plain, literal meaning of the statute meant the application of the control test is obligatory.

SC disagreed. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution and pertinent laws, then it
becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has already been abandoned must be discredited for lack of basis.

Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity
interests. Such conclusion is derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. The "control test" is still the
prevailing mode of determining whether or not a corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled
to undertake the exploration, development and utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt,
based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the
"grandfather rule."

Lozano vs. delos Santos

274 SCRA 452

FACTS: In August 1995, upon the request of the Sangguniang Bayan of Mabalacat, Pampanga, petitioner Reynaldo M. Lozano and private respondent
Antonio Anda agreed to consolidate their respective associations and form the Unified Mabalacat-Angeles Jeepney Operators' and Drivers Association,
Inc. Elections were held on October 29, 1995 and both petitioner and private respondent ran for president. When petitioner won, private respondent
protested and alleging fraud, refused to recognize the results of the election. Private respondent also refused to abide by their agreement and continued
collecting the dues from the members of his association despite several demands to desist. Petitioner was thus constrained to file the complaint before
Municipal Circuit Trial Court, Mabalacat and Magalang, Pampanga to restrain private respondent from collecting the dues and to order him to pay
damages. Private respondent moved to dismiss the complaint for lack of jurisdiction, claiming that jurisdiction was lodged with the SEC. The MCTC
denied the motion. It likewise denied the motion for reconsideration. Private respondent filed a petition for certiorari before the RTC, Branch 58, Angeles
City. The trial court found the dispute to be intracorporate, hence, subject to the jurisdiction of the SEC, and ordered the MCTC to dismiss the Civil Case
accordingly. It denied reconsideration, hence this petition. Private respondent raised the defense of corporation by estoppel thus within SEC jurisdiction.

ISSUE: Whether or not there exists an intracorporate or partnership relation between petitioner and private respondent.

RULING: The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law. This jurisdiction is determined by a
concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy.
There is no intracorporate nor partnership relation between petitioner and private respondent. The controversy between them arose out of their plan to
consolidate their respective jeepney drivers' and operators' associations into a single common association. This unified association was, however, still a
proposal. It had not been approved by the SEC, neither had its officers and members submitted their articles of consolidation is accordance with
Sections 78 and 79 of the Corporation Code. Consolidation becomes effective not upon mere agreement of the members but only upon issuance of the
certificate of consolidation by the SEC. When the SEC, upon processing and examining the articles of consolidation, is satisfied that the consolidation of
the corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a certificate of consolidation which makes the
reorganization official. The new consolidated corporation comes into existence and the constituent corporations dissolve and cease to exist.

The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC, but these associations are two
separate entities. The

dispute between petitioner and private respondent is not within the KAMAJDA nor the SAMAJODA. It is between members of separate and distinct
associations. Petitioner and private respondent have no intracorporate relation much less do they have an intracorporate dispute. The SEC therefore has
no jurisdiction over the complaint.

The doctrine of corporation by estoppel advanced by private respondent cannot override jurisdictional requirements. Jurisdiction is fixed by law and is
not subject to the agreement of the parties. 17 It cannot be acquired through or waived, enlarged or diminished by, any act or omission of the parties;
neither can it be conferred by the acquiescence of the court.

Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. It applies when persons assume to form a
corporation and exercise corporate functions and enter into business relations with third person. Where there is no third person involved and the conflict
arises only among those assuming the form of a corporation, who therefore know that it has not been registered, there is no corporation by estoppel.

Lim Tong Lim vs. Phil. Fishing Gear Industries, Inc., 317 SCRA 728

It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with him and one Antonio Chua. The three agreed to
purchase two fishing boats but since they do not have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again borrowed
money and they agreed to purchase fishing nets and other fishing equipments. Now, Yao and Chua represented themselves as acting in behalf of
“Ocean Quest Fishing Corporation” (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to
more than P500k.
They were however unable to pay PFGI and so they were sued in their own names because apparently OQFC is a non-existent corporation. Chua
admitted liability and asked for some time to pay. Yao waived his rights. Lim Tong Lim however argued that he’s not liable because he was not aware
that Chua and Yao represented themselves as a corporation; that the two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they subsequently revealed
their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with borrowed money, fell under the term “common fund” under Article 1767. The contribution to such
fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also shows that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to Yao and Chua. Unquestionably, Lim Tong Lim
benefited from the use of the nets found in his boat s, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua and Yao
decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as
contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing
it to be without valid existence, are held liable as general partners.

Intl Express Travel v. CA 343 SCRA 674

In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the Philippine Football Federation (PFF) its travel services for the South
East Asian Games. PFF, through Henri Kahn, its president, agreed. IETTI then delivered the plane tickets to PFF, PFF in turn made a down payment.
However, PFF was not able to complete the full payment in subsequent installments despite repeated demands from IETTI. IETTI then sued PFF and
Kahn was impleaded as a co-defendant.
Kahn averred that he should not be impleaded because he merely acted as an agent of PFF which he averred is a corporation with separate and distinct
personality from him. The trial court ruled against Kahn and held him personally liable for the said obligation (PFF was declared in default for failing to
file an answer). The trial court ruled that Kahn failed to prove that PFF is a corporation. The Court of Appeals however reversed the decision of the trial
court. The Court of Appeals took judicial notice of the existence of PFF as a national sports association; that as such, PFF is empowered to enter into
contracts through its agents; that PFF is therefore liable for the contract entered into by its agent Kahn. The CA further ruled that IETTI is in estoppel;
that it cannot now deny the corporate existence of PFF because it had contracted and dealt with PFF in such a manner as to recognize and in effect
admit its existence.
ISSUE: Whether or not the Court of Appeals is correct.
HELD: No. PFF, upon its creation, is not automatically considered a national sports association. It must first be recognized and accredited by the
Philippine Amateur Athletic Federation and the Department of Youth and Sports Development. This fact was never substantiated by Kahn. As such,
PFF is considered as an unincorporated sports association. And under the law, any person acting or purporting to act on behalf of a corporation which
has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. Kahn
is therefore personally liable for the contract entered into by PFF with IETTI.
There is also no merit on the finding of the CA that IETTI is in estoppel. The application of the doctrine of corporation by estoppel applies to a third
party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation. In the case at
bar, IETTI is not trying to escape liability from the contract but rather is the one claiming from the contract.

Loyola Grand Villas Homeowners vs. CA, 276 SCRA 681

In 1983, the Loyola Grand Villas Association, Inc. (LGVAI) was incorporated by the homeowners of the Loyola Grand Villas (LGV), a subdivision. The
Securities and Exchange Commission (SEC) issued a certificate of incorporation under its official seal to LGVAI in the same year. LGVAI was likewise
recognized by the Home Insurance and Guaranty Corporation (HIGC), a government-owned-and-controlled corporation whose mandate is to oversee
associations like LGVAI.
Later, LGVAI later found out that there are two homeowners associations within LGV, namely: Loyola Grand Villas Homeowners (South) Association, Inc.
(LGVAI-South) and Loyola Grand Villas Homeowners (North) Association, Inc. (LGVAI-North). The two associations asserted that they have to be formed
because LGVAI is inactive. When LGVAI inquired about its status with HIGC, HIGC advised that LGVAI was already terminated; that it was automatically
dissolved when it failed to submit it By-Laws after it was issued a certificate of incorporation by the SEC.
ISSUE: Whether or not a corporation’s failure to submit its by-laws results to its automatic dissolution.
HELD: No. A private corporation like LGVAI commences to have corporate existence and juridical personality from the date the Securities and Exchange
Commission (SEC) issues a certificate of incorporation under its official seal. The submission of its by-laws is a condition subsequent but although it is
merely such, it is a MUST that it be submitted by the corporation. Failure to submit however does not warrant automatic dissolution because such a
consequence was never the intention of the law. The failure is merely a ground for dissolution which may be raised in a quo warranto proceeding. It is
also worthwhile to note that failure to submit can’t result to automatic dissolution because there are some instances when a corporation does not
require a by-law

Fleischer vs. Botica Nolasco, 47 Phil 583

FACTS: This action was commenced in the CFI against the board of directors of the Botica Nolasco, Inc., a corporation duly organized and existing
under the laws of the Philippine Islands. The plaintiff prayed that said board of directors be ordered to register in the books of the corporation five
shares of its stock in the name of Henry Fleischer, the plaintiff, and to pay him the sum of P500 for damages sustained by him resulting from the refusal
of said body to register the shares of stock in question. (Basta na amend ung complaint)
defendant answered the amended complaint denying generally and specifically each and every one of the material allegations thereof, and, as a special
defense, alleged that the defendant, pursuant to article 12 of its by-laws, had preferential right to buy from the plaintiff said shares at the par value of
P100 a share, plus P90 as dividends corresponding to the year 1922, and that said offer was refused by the plaintiff.
Trial Court held that, in his opinion, article 12 of the by-laws of the corporation which gives it preferential right to buy its shares from retiring
stockholders, is in conflict with Act No. 1459 (Corporation Law), especially with section 35 thereof; and rendered a judgment in favor of plaintiff.
Hence, this appeal.
ISSUE: whether or not article 12 of the by-laws of the corporation is in conflict with the provisions of the Corporation Law (Act No. 1459).
Questioned article 12 creates in favor of the Botica Nolasco, Inc., a preferential right to buy, under the same conditions, the share or shares of stock of
a retiring shareholder. Has said corporation any power, under the Corporation Law (Act. No. 1459), to adopt such by-law?
HELD:
The particular provisions of the Corporation Law referring to transfer of shares of stock are as follows:
SEC. 13. Every corporation has the power:
xxx xxx xxx
(7) To make by-laws, not inconsistent with any existing law, for the fixing or changing of the number of its officers and directors within the limits
prescribed by law, and for the transferring of its stock, the administration of its corporate affairs, etc.
xxx xxx xxx
SEC. 35. The capital stock of stock corporations shall de divided into shares for which certificates signed by the president or the vice-president,
countersigned by the secretary or clerk and sealed with the seal of the corporation, shall be issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by delivery of the certificate indorsed by the owner or his attorney in fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the
books of the corporation so as to show the names of the parties to the transaction, that date of the transfer, the number of the certificate, and the
number of shares transferred.
No share of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation.
The holder of shares, as owner of personal property, is at liberty, under said section (Sec. 35), to dispose of them in favor of whomsoever he pleases,
without any other limitation in this respect, than the general provisions of law. Therefore, a stock corporation in adopting a by-law governing transfer of
shares of stock should take into consideration the specific provisions of section 35 of Act No. 1459, and said by-law should be made to harmonize with
said provisions. It should not be inconsistent therewith.
The by-law now in question was adopted under the power conferred upon the corporation by section 13, paragraph 7, above quoted; but in adopting
said by-law the corporation has transcended the limits fixed by law in the same section, and has not taken into consideration the provisions of section
35 of Act No. 1459.
As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation, and are
not contradictory to the general policy of the laws of the land.
On the other hand, it is equally well settled that by-laws of a corporation must be reasonable and for a corporate purpose, and always within the charter
limits. They must always be strictly subordinate to the constitution and the general laws of the land. They must not infringe the policy of the state, nor
be hostile to public welfare. They must not disturb vested rights or impair the obligation of a contract, take away or abridge the substantial rights of
stockholder or member, affect rights of property or create obligations unknown to the law.
The validity of the by-law of a corporation is purely a question of law. (South Florida Railroad Co. vs. Rhodes, 25 Fla., 40.)
The power to enact by-laws restraining the sale and transfer of stock must be found in the governing statute or the charter. Restrictions upon the traffic
in stock must have their source in legislative enactment, as the corporation itself cannot create such impediments. By-law are intended merely for the
protection of the corporation, and prescribe regulation and not restriction; they are always subject to the charter of the corporation. The corporation, in
the absence of such a power, cannot ordinarily inquire into or pass upon the legality of the transaction by which its stock passes from one person to
another, nor can it question the consideration upon which a sale is based. A by-law cannot take away or abridge the substantial rights of
stockholder. Under a statute authorizing by- laws for the transfer of stock, a corporation can do no more than prescribe a general mode of transfer on
the corporate books and cannot justify an unreasonable restriction upon the right of sale .
xxx
that a corporation has no power to prevent or to restrain transfers of its shares, unless such power is expressly conferred in its charter or governing
statute. This conclusion follows from the further consideration that by-laws or other regulations restraining such transfers, unless derived from authority
expressly granted by the legislature, would be regarded as impositions in restraint of trade .
The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459, quoted above, as follows: “No
transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation xxx This
restriction is necessary in order that the officers of the corporation may know who are the stockholders, which is essential in conducting elections of
officers, in calling meeting of stockholders, and for other purposes. But any restriction of the nature of that imposed in the by-law now in question,
is ultra vires, violative of the property rights of shareholders, and in restraint of trade.
And moreover, the by-laws now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were
assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by said by-law between
the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser.
A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors, while it may be enforced as
a reasonable regulation for the protection of the corporation against worthless stockholders, cannot be made available to defeat the rights of third
persons. (Farmers’ and Merchants’ Bank of Lineville vs. Wasson, 48 Iowa, 336.)
Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to compel the officers of the corporation to
transfer said stock upon the books of the corporation.
Petition denied. Decision of trial court affirmed.

Government of the Philippines vs. El Hogar, 50 Phil 399

This is a quo warranto proceeding instituted originally in this court by the Government of the Philippine Islands on the relation of the Attorney- General
against the building and loan association known as El Hogar Filipino, for the purpose of depriving it of its corporate franchise, excluding it from all
corporate rights and privileges, and effecting its final dissolution, due to alleged violations committed by said corporation.

ISSUE: WON the corporation must be dissolved on the grounds enumerated by the Government.

First cause of action: alleged illegal holding by the respondent of the title to real property for a period in excess of five years after the property had been
bought in by the respondent at one of its own foreclosure sales. In 1920, respondent El Hogar Filipino was the holder of a recorded mortgage upon a
tract of land in the San Clemente, Tarlac, as security for a loan to its shareholders who were the owners of said property. The borrowers having
defaulted in their payments, respondent foreclosed the mortgage and purchased the land at the foreclosure sale on November 18, 1920, and the deed
conveying the property to respondent was executed and delivered December 22, 1920. Respondent sent the deed to the register of deeds of the
Province of Tarlac, with the request that the certificate of title then standing in the name of the former owners be cancelled and that a new certificate of
title be issued in its name. The certificate of title to the land was issued on May 7, 1921. In 1921, El Hogar Filipino authorized agents to find a buyer of
the said land but since they did not succeed in finding one, the land was advertised for sale. The first offer was made by one Alcantara and the board
accepted the offer in 1926. Upon Alcantara’s failure to pay, however, respondent treated the contract with him rescinded. It was only on July 30, 1926,
when the property was finally sold to Felipa Alberto.

HELD: The Attorney-General points out that the respondent acquired title on December 22, 1920, when the deed was executed and delivered, by which
the property was conveyed to it as purchaser at its foreclosure sale, and this title remained in it until July 30, 1926, when the property was finally sold
to Felipa Alberto. The interval between these two conveyances is thus more than five years. It has been held by this court that a purchaser of land
registered under the Torrens system cannot acquire the status of an innocent purchaser for value unless his vendor is able to place in his hands an
owner's duplicate showing the title of such land to be in the vendor. It results that prior to May 7, 1921, El Hogar Filipino was not really in a position to
pass an indefeasible title to any purchaser. In this connection it will be noted that section 75 of the Act of Congress of July 1, 1902, and the similar
provision in section 13 of the Corporation Law, allow the corporation "five years after receiving the title," within which to dispose of the property. A fair
interpretation of these provisions would seem to indicate that the date of the receiving of the title in this case was the date when the respondent
received the owner's certificate, or May 7, 1921, for it was only after that date that the respondent had an unequivocal and unquestionable power to
pass a complete title. The failure of the respondent to receive the certificate sooner was not due in any wise to its fault, but to unexplained delay on the
part of the register of deeds. For this delay the respondent cannot be held accountable. It is urged for the respondent that the period between March
25, 1926, and April 30, 1926, should not be counted as part of the five-year period. This was the period during which the respondent was under
obligation to sell the property to Alcantara, prior to the rescission of the contract by reason of Alcantara's failure to make the stipulated first payment.
Upon this point the contention of the respondent is, in our opinion, well founded. The acceptance by it of Alcantara's offer obligated the respondent to
Alcantara; and if it had not been for the default of Alcantara, the effective sale of the property would have resulted.

The evident purpose behind the law restricting the rights of corporations with respect to the tenure of land was to prevent the revival of the
entail (mayorazgo) or other similar institution by which land could be fettered and its alienation hampered over long periods of time. In the case before
us the respondent corporation has in good faith disposed of the piece of property which appears to have been in its hands at the expiration of the
period fixed by law, and a fair explanation is given of its failure to dispose of it sooner. Under these circumstances the destruction of the corporation
would bring irreparable loss upon the thousands of innocent shareholders of the corporation without any corresponding benefit to the public. The
discretion permitted to this court in the application of the remedy of quo warranto forbids so radical a use of the remedy. Second cause of action: the
respondent owns and holds a business lot, with the structure thereon, in the financial district of Manila in excess of its reasonable requirements and in
contravention of subsection 5 of section 13 of the corporation Law. (Contention: that the construction of the new office building and the subsequent
renting of the same in great part to third persons are ultra vires acts on the part of the corporation) The respondent purchased 1,413 sq. m. of land at
the corner of Juan Luna St. and the Muelle de la Industria, in Manila. At the time the respondent acquired this lot there stood upon it a building, then
nearly 50 yrs old, made of Guadalupe stone and hewn timber.
The directors of the El Hogar caused the old building to be demolished and erected thereon a modern reinforced concrete office building. As
at first constructed the new building was three stories high, but in 1920, to obtain greater advantage from the use of the land, an additional story was
added to the building, making a structure of four stories except in one corner where an additional story was placed, making it five stories high. Since the
new building was completed the respondent has used about 324 sq m of floor space for its own offices and has rented the remainder of the office space
in said building, consisting of about 3,175 sq m, to other persons and entities.
HELD: Under subsection 5 of section 13 of the Corporation Law, every corporation has the power to purchase, hold and lease such real property as the
transaction of the lawful business of the corporation may reasonably and necessarily require. When this property was acquired in 1916, the business of
El Hogar Filipino had developed to such an extent, and its prospects for the future were such as to justify its directors in acquiring a lot in the financial
district of Manila and in constructing thereon a suitable building as the site of its offices; and it cannot be fairly said that the area of the lot — 1,413 sq
m — was in excess of its reasonable requirements.
The law expressly declares that corporations may acquire such real estate as is reasonably necessary to enable them to carry out the
purposes for which they were created; and we are of the opinion that the owning of a business lot upon which to construct and maintain its offices is
reasonably necessary to a building and loan association such as the respondent was at the time this property was acquired.

A different ruling on this point would compel important enterprises to conduct their business exclusively in leased offices — a result which
could serve no useful end but would retard industrial growth and be inimical to the best interests of society. We are furthermore of the opinion that,
inasmuch as the lot referred to was lawfully acquired by the respondent, it is entitled to the full beneficial use thereof. No legitimate principle can
discovered which would deny to one owner the right to enjoy his (or its) property to the same extent that is conceded to any other owner; and an
intention to discriminate between owners in this respect is not lightly to be imputed to the Legislature. Third cause of action: respondent is charged with
engaging in activities foreign to the purposes for which the corporation was created and not reasonable necessary to its legitimate ends.

The specifications under this cause of action relate to three different sorts of activities: The first consist of the administration of the offices in
the El Hogar building not used by the respondent itself and the renting of such offices to the public. As stated in the discussion connected with the
second cause of action, the respondent uses only about ten per cent of the office space in the El Hogar building for its own purposes, and it leases the
remainder to strangers. In the years 1924 and 1925 the respondent received as rent for the leased portions of the building the sums of P75,395.06 and
P58,259.27, respectively. The activities here criticized clearly fall within the legitimate powers of the respondent, as shown in what we have said above
relative to the second cause of action. This matter will therefore no longer detain us. If the respondent had the power to acquire the lot, construct the
edifice and hold it beneficially, as there decided, the beneficial administration by it of such parts of the building as are let to others must necessarily be
lawful. The second specification has reference to the administration and management of properties belonging to delinquent shareholders of the
association.

It appears that in case of delinquency on the part of its shareholders in the payment of interest, premium, and dues, the association has been
accustomed (pursuant to clause 8 of its standard mortgage) to take over and manage the mortgaged property for the purpose of applying the income to
the obligations of the debtor party. For these services the respondent charges a commission at the rate of 2½ per centum on sums collected. The case
for the government supposes that the only remedy which the respondent has in case of default on the part of its shareholders is to proceed to enforce
collection of the whole loan in the manner contemplated in section 185 of the Corporation Law. It will be noted, however, that, according to said
section, the association may treat the whole indebtedness as due, "at the option of the board of directors," and this remedy is not made exclusive. We
see no reason to doubt the validity of the clause giving the association the right to take over the property which constitutes the security for the
delinquent debt and to manage it with a view to the satisfaction of the obligations due to the debtor than the immediate enforcement of the entire
obligation, and the validity of the clause allowing this course to be taken appears to us to be not open to doubt. The third specification under this cause
of action relates to certain activities, such that: El Hogar Filipino has undertaken the management of some parcels of improved real estate situated in
Manila not under mortgage to it, but owned by shareholders. This service is limited to shareholders; but some of the persons whose properties are so
managed for them became shareholders only to enable them to take advantage thereof. The services rendered in the management of such improved
real estate by El Hogar Filipino consist in the renting of the same, the payment of real estate taxes and insurance for the account of the owner, causing
the necessary repairs for upkeep to be made, and collecting rents due from tenants.

For its services, El Hogar Filipino receives compensation in the form of commissions upon the gross receipts from such properties. This
practice is in our opinion unauthorized by law. The administration of property in the manner described is more befitting to the business of a real estate
agent or trust company than to the business of a building and loan association. The practice to which this criticism is directed relates of course solely to
the management and administration of properties which are not mortgaged to the association. The circumstance that the owner of the property may
have been required to subscribe to one or more shares of the association with a view to qualifying him to receive this service is of no significance. It is a
general rule of law that corporations possess only such express powers. The management and administration of the property of the shareholders of the
corporation is not expressly authorized by law, and we are unable to see that, upon any fair construction of the law, these activities are necessary to the
exercise of any of the granted powers.

The corporation, upon the point now under the criticism, has clearly extended itself beyond the legitimate range of its powers. But it does not
result that the dissolution of the corporation is in order, and it will merely be enjoined from further activities of this sort. Fourth cause of action: Article
10 of its by-laws empowers the board of directors by majority vote to cancel shares and to return to the owner thereof the balance resulting from the
liquidation thereof whenever, by reason of their conduct, or for any other motive, the continuation as members of the owners of such shares is not
desirable. The provision is a patent nullity, since it is in direct conflict with the latter part of section 187 of the Corporation Law, which expressly
declares that the board of directors shall not have the power to force the surrender and withdrawal of unmatured stock except in case of liquidation of
the corporation or of forfeiture of the stock for delinquency. However, there is no provision of law making it a misdemeanor to incorporate an invalid
provision in the by-laws of a corporation; and if there were such, the hazards incident to corporate effort would certainly be largely increased. Fifth
cause of action: the failure of the corporation to hold annual meetings for election of directors in the manner prescribed by law Owing to the failure of a
quorum at most of the general meetings since the respondent has been in existence, it has been the practice of the directors to fill vacancies in the
directorate by choosing suitable persons from among the stockholders. This custom finds its sanction in article 71 of the by- laws. The person thus
chosen to fill vacancies in the directorate have, it is admitted, uniformly been experienced and successful business and professional men of means,
belonging to prominent Filipino families, and more or less related to each other by blood or marriage.

In this connection it is charged that the board of directors of the respondent has become a permanent and self-perpetuating body composed
of wealthy men instead of wage earners and persons of moderate means. No fault can be imputed to the corporation on account of the failure of the
shareholders to attend the annual meetings; and their non-attendance at such meetings is doubtless to be interpreted in part as expressing their
satisfaction of the way in which things have been conducted. Upon failure of a quorum at any annual meeting the directorate naturally holds over and
continues to function until another directorate is chosen and qualified. Sixth cause of action: the directors of El Hogar Filipino, instead of serving without
pay, or receiving nominal pay or a fixed salary, have been receiving large compensation, varying in amount from time to time, out of the profits of the
respondent. Under section 92 of the by-laws of El Hogar Filipino 5 per centum of the net profit shown by the annual balance sheet is distributed to the
directors in proportion to their attendance at meetings of the board. The Corporation Law does not undertake to prescribe the rate of compensation for
the directors of corporations. The power to fix the compensation they shall receive, if any, is left to the corporation, to be determined in its by-laws (Act
No. 1459, sec. 21). Pursuant to this authority the compensation for the directors of El Hogar Filipino has been fixed in section 92 of its by-laws, as
already stated. The justice and property of this provision was a proper matter for the shareholders when the by-laws were framed; and the
circumstance that, with the growth of the corporation, the amount paid as compensation to the directors has increased beyond what would probably be
necessary to secure adequate service from them is matter that cannot be corrected in this action; nor can it properly be made a basis for depriving the
respondent of its franchise, or even for enjoining it from compliance with the provisions of its own by-laws.

If a mistake has been made, or the rule adopted in the by-laws meeting to change the rule. Seventh cause of action: the written agreement of
the corporation with Mr. Antonio Melian, the corporation’s the promoter and organizer, which grants him five per centum (5%) of the net profits to be
earned by it in each year during the period fixed for the duration of the association by its articles of incorporation, transmissible to his heirs upon his
death, as compensation of the studies made, services rendered and expenses incurred by him, and the loan he extended to the corporation (inserted in
Art. 92 of the by-laws). No possible doubt exists as to the power of a corporation to contract for services rendered and to be rendered by a promoter in
connection with organizing and maintaining the corporation. xxx If the Melian contract had been clearly ultra vires — which is not charged and is
certainly untrue — its continued performance might conceivably be enjoined in such a proceeding as this; but if the defect from which it suffers is mere
matter for an action because Melian is not a party. It is rudimentary in law that an action to annul a contract cannot be maintained without joining both
the contracting parties as defendants. Moreover, the proper party to bring such an action is either the corporation itself, or some shareholder who has
an interest to protect. The mere fact that the compensation paid under this contract is in excess of what, in the full light of history, may be considered
appropriate is not a proper consideration for this court, and supplies no ground for interfering with its performance. Eighth cause of action: Article 70 of
the by-laws in effect requires that persons elected to the board of directors must be holders of shares of the paid up value of P5,000 which shall be held
as security may be put up in the behalf of any director by some other holder of shares in the amount stated. Article 76 of the by-laws declares that the
directors waive their right as shareholders to receive loans from the association. It is asserted that article 70 is objectionable in that, under the
requirement for security, a poor member, or wage-earner, cannot serve as director, irrespective of other qualifications and that as a matter of fact only
men of means actually sit on the board. Article 76 is criticized on the ground that the provision requiring directors to renounce their right to loans
unreasonably limits their rights and privileges as members.
There is nothing of value in either of these suggestions. Section 21 of the Corporation Law expressly gives the power to the corporation to
provide in its by-laws for the qualifications of directors; and the requirement of security from them for the proper discharge of the duties of their office,
in the manner prescribed in article 70, is highly prudent and in conformity with good practice. Article 76, prohibiting directors from making loans to
themselves, is of course designed to prevent the possibility of the looting of the corporation by unscrupulous directors. Ninth cause of action: the
respondent has abused its franchise in issuing "special" shares. Upon examination of the nature of the special shares in the light of American usage, it
will be found that said shares are precisely the same kind of shares that, in some American jurisdictions, are generally known as advance payment
shares; and if close attention be paid to the language used in the last sentence of section 178 of the Corporation Law, it will be found that special
shares where evidently created for the purpose of meeting the condition caused by the prepayment of dues that is there permitted. The language of this
provision is as follow "payment of dues or interest may be made in advance, but the corporation shall not allow interest on such advance payment at a
greater rate than six per centum per annum nor for a longer period than one year." Tenth cause of action: that the defendant is pursuing a policy of
depreciating, at the rate of 10 per centum per annum, the value of the real properties acquired by it at its sales; and it is alleged that this rate is
excessive. There is no positive provision of law prohibiting the association from writing off a reasonable amount for depreciation on its assets for the
purpose of determining its real profits; and article 74 of its by-laws expressly authorizes the board of directors to determine each year the amount to be
written down upon the expenses of installation and the property of the corporation. There can be no question that the power to adopt such a by-law is
embraced within the power to make by-laws for the administration of the corporate affairs of the association and for the management of its business, as
well as the care, control and disposition of its property (Act No. 1459, sec. 13 [7]).

The Attorney-General questions the exercise of the direction confided to the board; and it is insisted that the excessive depreciation of the
property of the association is objectionable in several respects, but mainly because it tends to increase unduly the reserves of the association, thereby
frustrating the right of the shareholders to participate annually and equally in the earnings of the association. If the criticism contained in the brief of
the Attorney-General upon the practice of the respondent association with respect to depreciation be well founded, the Legislature should supply the
remedy by defining the extent to which depreciation may be allowed by building and loan associations. Certainly this court cannot undertake to control
the discretion of the board of directors of the association about an administrative matter as to which they have legitimate power of action. Eleventh and
twelfth causes of action: The specification in the eleventh cause of action is that the respondent maintains excessive reserve funds (5% of the net
profits each year), and in the twelfth cause of action that the board of directors has settled upon the unlawful policy of paying a straight annual dividend
of 10 per centum, regardless of losses suffered and profits made by the corporation and in contravention of the requirements of section 188 of the
Corporation Law. It is true that the corporation law does not expressly grant this power, but we think it is to be implied. It is a fact of common
observation that all commercial enterprises encounter periods when earnings fall below the average, and the prudent manager makes provision for such
contingencies. To regard all surplus as profit is to neglect one of the primary canons of good business practice. Building and loan associations, though
among the most solid of financial institutions, are nevertheless subject to vicissitudes. Fluctuations in the dividend rate are highly detrimental to any
fiscal institutions, while uniformity in the payments of dividends, continued over long periods, supplies the surest foundations of public confidence. xxx
Our conclusion is that the respondent has the power to maintain the reserves criticized in the eleventh and twelfth counts of the complaint; and at any
rate, if it be supposed that the reserves referred to have become excessive, the remedy is in the hands of the Legislature.

It is no proper function of the court to arrogate to itself the control of administrative matters which have been confided to the discretion of the
board of directors. Thirteenth cause of action: that the respondent association has made loans which, to the knowledge of the associations officers were
intended to be used by the borrowers for other purposes than the building of homes. There is no statute here expressly declaring that loans may be
made by these associations solely for the purpose of building homes. On the contrary, the building of homes is mentioned in section 171 of the
Corporation Law as only one among several ends which building and loan associations are designed to promote. Furthermore, section 181 of the
Corporation Law expressly authorities the Board of directors of the association from time to time to fix the premium to be charged. Fourteenth cause of
action: that the loans made by the defendant for purposes other than building or acquiring homes have been extended in extremely large amounts and
to wealthy persons and large companies. The law states no limit with respect to the size of the loans to be made by the association. That matter is
confided to the discretion of the board of directors; and this court cannot arrogate to itself a control over the discretion of the chosen officials of the
company. If it should be thought wise in the future to put a limit upon the amount of loans to be made to a single person or entity, resort should be had
to the Legislature; it is not a matter amenable to judicial control. Fifteenth cause of action: that upon the expiration of the franchise of the association
through the effluxion of time, or earlier liquidation of its business, the accumulated reserves and other properties will accrue to the founder, or his heirs,
and the then directors of the corporation and to those persons who may at that time to be holders of the ordinary and special shares of the corporation.
This cause of action is not directed to any positive misdemeanor supposed to have been committed by the association. It has exclusive relation to what
may happen some thirty-five years hence when the franchise expires, supposing of course that the corporation should not be reorganized and continued
after that date. It seems to us that this is matter that may be left to the prevision of the directors or to legislative action if it should be deemed
expedient to require the gradual suppression of the reserve funds as the time for dissolution approaches.

It is no matter for judicial interference, and much less could the resumption of the franchise on this ground be justified. Sixteenth cause of
action: that various loans now outstanding have been made by the respondent to corporations and partnerships, and that these entities have in some
instances subscribed to shares in the respondent for the sole purpose of obtaining such loans. In section 173 of the Corporation Law it is declared that
"any person" may become a stockholder in building and loan associations. The word "person" appears to be here used in its general sense, and there is
nothing in the context to indicate that the expression is used in the restricted sense of both natural and artificial persons, as indicated in section 2 of the
Administrative Code. We would not say that the word "person" or persons," is to be taken in this broad sense in every part of the Corporation Law.
Seventeenth cause of action: that in disposing of real estates purchased by it in the collection of its loans, the defendant has in various occasions sold
some of the said real estate on credit, transferring the title thereto to the purchaser; that the properties sold are then mortgaged to the defendant to
secure the payment of the purchase price, said amount being considered as a loan, and carried as such in the books of the defendant, and that several
such obligations are still outstanding. It is further charged that the persons and entities to which said properties are sold under the condition charged
are not members or shareholders nor are they made members or shareholders of the defendant.

This part of the complaint is based upon a mere technicality of bookkeeping. The central idea involved in the discussion is the provision of the
Corporation Law requiring loans to be stockholders only and on the security of real estate and shares in the corporation, or of shares alone. It seems to
be supposed that, when the respondent sells property acquired at its own foreclosure sales and takes a mortgage to secure the deferred payments, the
obligation of the purchaser is a true loan, and hence prohibited. But in requiring the respondent to sell real estate which it acquires in connection with
the collection of its loans within five years after receiving title to the same, the law does not prescribe that the property must be sold for cash or that
the purchaser shall be a shareholder in the corporation. In conclusion, the respondent is enjoined in the future from administering real property not
owned by itself, except as may be permitted to it by contract when a borrowing shareholder defaults in his obligation. In all other respects the
complaint is dismissed

RP vs. Acoje Mining, 7 SCRA 361

On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director of Posts requesting the opening of a post, telegraph and money order offices at its
mining camp at Sta. Cruz, Zambales, to service its employees and their families that were living in said camp. Acting on the request, the Director of
Posts wrote in reply stating that if aside from free quarters the company would provide for all essential equipment and assign a responsible employee to
perform the duties of a postmaster without compensation from his office until such time as funds therefor may be available he would agree to put up
the offices requested. The company in turn replied signifying its willingness to comply with all the requirements outlined in the letter of the Director of
Posts requesting at the same time that it be furnished with the necessary forms for the early establishment of a post office branch.
On April 11, 1949, the Director of Posts again wrote a letter to the company stating among other things that "In cases where a post office will be
opened under circumstances similar to the present, it is the policy of this office to have the company assume direct responsibility for whatever pecuniary
loss may be suffered by the Bureau of Posts by reason of any act of dishonesty, carelessness or negligence on the part of the employee of the company
who is assigned to take charge of the post office," thereby suggesting that a resolution be adopted by the board of directors of the company expressing
conformity to the above condition relative to the responsibility to be assumed buy it in the event a post office branch is opened as requested. On
September 2, 1949, the company informed the Director of Posts of the passage by its board of directors of a resolution of the following tenor: "That the
requirement of the Bureau of Posts that the Company should accept full responsibility for all cash received by the Postmaster be complied with, and that
a copy of this resolution be forwarded to the Bureau of Posts." The letter further states that the company feels that that resolution fulfills the last
condition imposed by the Director of Posts and that, therefore, it would request that an inspector be sent to the camp for the purpose of acquainting the
postmaster with the details of the operation of the branch office.
The post office branch was opened at the camp on October 13, 1949 with one Hilario M. Sanchez as postmaster. He is an employee of the company. On
May 11, 1954, the postmaster went on a three-day leave but never returned. The company immediately informed the officials of the Manila Post Office
and the provincial auditor of Zambales of Sanchez' disappearance with the result that the accounts of the postmaster were checked and a shortage was
found in the amount of P13,867.24.
The several demands made upon the company for the payment of the shortage in line with the liability it has assumed having failed, the government
commenced the present action on September 10, 1954 before the Court of First Instance of Manila seeking to recover the amount of Pl3,867.24. The
company in its answer denied liability for said amount contending that the resolution of the board of directors wherein it assumed responsibility for the
act of the postmaster is ultra vires, and in any event its liability under said resolution is only that of a guarantor who answers only after the exhaustion
of the properties of the principal, aside from the fact that the loss claimed by the plaintiff is not supported by the office record.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to
the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñët
After trial, the court a quo found that, of the amount claimed by plaintiff totalling P13,867.24, only the sum of P9,515.25 was supported by the
evidence, and so it rendered judgment for the plaintiff only for the amount last mentioned. The court rejected the contention that the resolution
adopted by the company is ultra vires and that the obligation it has assumed is merely that of a guarantor.
Defendant took the present appeal.
The contention that the resolution adopted by the company dated August 31, 1949 is ultra vires in the sense that it has no authority to act on a matter
which may render the company liable as a guarantor has no factual or legal basis. In the first place, it should be noted that the opening of a post office
branch at the mining camp of appellant corporation was undertaken because of a request submitted by it to promote the convenience and benefit of its
employees. The idea did not come from the government, and the Director of Posts was prevailed upon to agree to the request only after studying the
necessity for its establishment and after imposing upon the company certain requirements intended to safeguard and protect the interest of the
government. Thus, after the company had signified its willingness to comply with the requirement of the government that it furnish free quarters and all
the essential equipment that may be necessary for the operation of the office including the assignment of an employee who will perform the duties of a
postmaster, the Director of Posts agreed to the opening of the post office stating that "In cases where a post office will be opened under circumstances
similar to the present, it is the policy of this office to have the company assume direct responsibility for whatever pecuniary loss may be suffered by the
Bureau of Posts by reason of any act of dishonesty, carelessness or negligence on the part of the employee of the company who is assigned to take
charge of the post office," and accepting this condition, the company, thru its board of directors, adopted forthwith a resolution of the following tenor:
"That the requirement of the Bureau of Posts that the company should accept full responsibility for all cash received by the Postmaster, be complied
with, and that a copy of this resolution be forwarded to the Bureau of Posts." On the basis of the foregoing facts, it is evident that the company cannot
now be heard to complain that it is not liable for the irregularity committed by its employee upon the technical plea that the resolution approved by its
board of directors is ultra vires. The least that can be said is that it cannot now go back on its plighted word on the ground of estoppel.
The claim that the resolution adopted by the board of directors of appellant company is an ultra vires act cannot also be entertained it appearing that
the same covers a subject which concerns the benefit, convenience and welfare of its employees and their families. While as a rule an ultra vires act is
one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers
conferred upon it by law (19 C.J.S., Section 965, p. 419), there are however certain corporate acts that may be performed outside of the scope of the
powers expressly conferred if they are necessary to promote the interest or welfare of the corporation. Thus, it has been held that "although not
expressly authorized to do so a corporation may become a surety where the particular transaction is reasonably necessary or proper to the conduct of
its business,"1 and here it is undisputed that the establishment of the local post office is a reasonable and proper adjunct to the conduct of the business
of appellant company. Indeed, such post office is a vital improvement in the living condition of its employees and laborers who came to settle in its
mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality..
Even assuming arguendo that the resolution in question constitutes an ultra vires act, the same however is not void for it was approved not in
contravention of law, customs, public order or public policy. The term ultra vires should be distinguished from an illegal act for the former is merely
voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated. 2 It being merely voidable, an
ultra vires act can be enforced or validated if there are equitable grounds for taking such action. Here it is fair that the resolution be upheld at least on
the ground of estoppel. On this point, the authorities are overwhelming:
The weight of authority in the state courts is to the effect that a transaction which is merely ultra vires and not malum in se or malum
prohibitum, is, if performed by one party, not void as between the parties to all intents and purposes, and that an action may be brought
directly on the transaction and relief had according to its terms. (19 C.J.S., Section 976, p. 432, citing Nettles v. Rhett, C.C.A.S.C., 94 F. 2d,
reversing, D.C., 20 F. Supp. 48)
This rule is based on the consideration that as between private corporations, one party cannot receive the benefits which are embraced in
total performance of a contract made with it by another party and then set up the invalidity of the transaction as a defense." (London &
Lancashire Indemnity Co. of America v. Fairbanks Steam Shovel Co., 147 N.E. 329, 332, 112 Ohio St. 136.)
The defense of ultra vires rests on violation of trust or duty toward stockholders, and should not be entertained where its allowance will do
greater wrong to innocent parties dealing with corporation..
The acceptance of benefits arising from the performance by the other party may give rise to an estoppel precluding repudiation of the
transaction. (19 C.J.S., Section 976, p. 433.)
The current of modern authorities favors the rule that where the ultra vires transaction has been executed by the other party and the
corporation has received the benefit of it, the law interposes an estoppel, and will not permit the validity of the transaction or contract to be
questioned, and this is especially true where there is nothing in the circumstances to put the other party to the transaction on notice that the
corporation has exceeded its powers in entering into it and has in so doing overstepped the line of corporate privileges. (19 C.J.S., Section
977, pp. 435-437, citing Williams v. Peoples Building & Loan Ass'n, 97 S.W. 2d 930, 193 Ark. 118; Hays v. Galion Gas Light Co., 29 Ohio St.
330)
Neither can we entertain the claim of appellant that its liability is only that of a guarantor. On this point, we agree with the following comment of the
court a quo: "A mere reading of the resolution of the Board of Directors dated August 31, 1949, upon which the plaintiff based its claim would show that
the responsibility of the defendant company is not just that of a guarantor. Notice that the phraseology and the terms employed are so clear and
sweeping and that the defendant assumed 'full responsibility for all cash received by the Postmaster.' Here the responsibility of the defendant is not just
that of a guarantor. It is clearly that of a principal." WHEREFORE, the decision appealed from is affirmed. No costs.

Carlos vs. Mindoro Sugar Co, 57 Phil 343

Facts: This is an action to recover from the defendants the value of four bonds with due and unpaid interest thereon, issued by the Mindoro Sugar
Company and placed in trust with the Philippine Trust Company. Mindoro Sugar Company is a corporation constituted in accordance with the laws of the
country. According to its articles of incorporation one of its principal purposes was to acquire and exercise the franchise granted by Act No. 2720 to
George H. Fairchild, to substitute the organized corporation. Philippine Trust Company is another domestic corporation its principal purpose, then, as its
name indicates, is to engage in the trust business. The board of directors of the Philippine Trust Company, adopted a resolution authorizing its
president, among other things, to purchase the bonds in the Mindoro Sugar Company that was about to issue, and to resell them, with or without the
guarantee of said trust corporation, at a price not less than par, and to guarantee to the Philippine National Bank the payment of the indebtedness to
said bank by the Mindoro Sugar Company. Pursuance of this resolution, the Mindoro Sugar Company executed in favor of the Philippine Trust Company
the deed of trust transferring all of its property to it in consideration of the bonds it had issued. Philippine Trust Company sold thirteen bonds, to Ramon
Diaz. The Philippine Trust Company paid the appellant, upon presentation of the coupons, the stipulated interest from the date of their maturity then it
stopped payments; and thenceforth it alleged that it did not deem itself bound to pay such interest or to redeem the obligation because the guarantee
given for the bonds was illegal and void.
Issue: WON PTC has the power to guarantee and does this act constitute an ultra vires act?
Held: No. It is not ultra vires for a corporation to enter into contracts of guaranty or suretyship where it does so in the legitimate furtherance of its
purposes and business. And it is well settled that where a corporation acquires commercial paper or bonds in the legitimate transaction of its business it
may sell them, and in furtherance of such a sale it may, in order to make them the more readily marketable, indorse or guarantee their payment.
Whenever a corporation has the power to take and dispose of the securities of another corporation, of whatsoever kind, it may, for the purpose of
giving them a marketable quality, guarantee their payment, even though the amount involved in the guaranty may subject the corporation to liabilities
in excess of the limit of indebtedness which it is authorized to incur. A corporation which has power by its charter to issue its own bonds has power to
guarantee the bonds of another corporation, which has been taken in payment of a debt due to it, and which it sells or transfers in payment of its own
debt, the guaranty being given to enable it to dispose of the bond to better advantage. And so guaranties of payment of bonds taken by a loan and
trust company in the ordinary course of its business, made in connection with their sale, are not ultra vires, and are binding.
When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made, it will, in the absence of proof to
the contrary, be presumed to be valid.

Nat’l Power Corp. vs. Vera, 170 SCRA 721

FACTS: The instant petition arose from a complaint for prohibition and mandamus with damages filed by private respondent against NPC and Philippine
Ports Authority (PPA), wherein private respondent alleged that NPC had acted in bad faith and with grave abuse of discretion in not renewing its
Contract for Stevedoring Services for Coal-Handling Operations at NPC's plant, and in taking over its stevedoring services. Soon after the filing of private
respondent's complaint, respondent judge issued a restraining order against NPC enjoining the latter from undertaking stevedoring services at its pier.
Consequently, NPC filed an "Urgent Motion" to dissolve the restraining order, asserting, inter alia: (1) that by virtue of Presidential Decree No. 1818,
respondent judge had no jurisdiction to issue the order; and (2) that private respondent, whose contract with NPC had expired prior to the
commencement of the suit, failed to establish a cause of action for a writ of preliminary injunction. Respondent judge issued the assailed Order denying
NPC's motion and issuing a writ of preliminary injunction, after finding that NPC was not empowered by its Charter, Republic Act No. 6395, as amended,
to engage in stevedoring and arrastre services. Hence, the instant petition.

ISSUE: Whether or not NPC was empowered by its Charter to engage in stevedoring and arrastre services?

Ruling: Yes. Moreover, respondent judge's finding that NPC is not empowered by its Charter to undertake stevedoring services in its pier is erroneous.
To carry out the national policy of total electrification of the country, specifically the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources to meet the needs of industrial development and dispersal and the needs of rural
electrification [Secs. 1 and 2, Rep. Act No. 6395, as amended], the NPC was created and empowered not only to construct, operate and maintain power
plants, reservoirs, transmission lines, and other works, but also: xxx xxx xxx ... To exercise such powers and do such things as may be reasonably
necessary to carry out the business and purposes for which it was organized, or which, from time to time, may be declared by the Board to be
necessary, useful, incidental or auxiliary to accomplish said purpose, . . . [Sec. 3 (1) of Rep. Act No. 6395, as amended.] In determining whether or not
an NPC act falls within the purview of the above provision, the Court must decide whether or not a logical and necessary relation exists between the act
questioned and the corporate purpose expressed in the NPC charter. For if that act is one which is lawful in itself and not otherwise prohibited, and is
done for the purpose of serving corporate ends, and reasonably contributes to the promotion of those ends in a substantial and not in a remote and
fanciful sense, it may be fairly considered within the corporation's charter powers [Montelibano v. Bacolod-Murcia Milling Co., Inc., G.R. No. L-15092,
May 18, 1962, 5 SCRA 36.] In the instant case, it is an undisputed fact that the pier located at Calaca, Batangas, which is owned by NPC, receives the
various shipments of coal which is used exclusively to fuel the Batangas Coal-Fired Thermal Power Plant of the NPC for the generation of electric power.
The stevedoring services which involve the unloading of the coal shipments into the NPC pier for its eventual conveyance to the power plant are
incidental and indispensable to the operation of the plant The Court holds that NPC is empowered under its Charter to undertake such services, it being
reasonably necessary to the operation and maintenance of the power plant.

Madrigal & Co. vs. Zamora, 151 SCRA 355

Madrigal & Company, Inc. (MCI) manages the business of another corporation, Rizal Cement Co., Inc. (RCC). In 1973, a labor union in MCI sought the
renewal of the collective bargaining agreement (CBA). The union proposes a P200.00 monthly wage increase and an additional P100 monthly allowance.
MCI refused to negotiate. Later, MCI reduced its authorized capital stocks. It then wrote a letter to the Department of Labor averring that it is incurring
losses and so it will enforce a retrenchment program. The letter is however unsupported by documents and so the Department of Labor ignored it.
However, MCI went on to dismiss several employees which led the labor union to sue MCI for unfair labor practices and illegal dismissal. The labor
arbiter ruled in favor of the labor union. The issue reached the Office of the President. The then Presidential Assistant For Legal Affairs, Ronaldo
Zamora, denied MCI’s appeal.
On appeal, MCI insists that it is incurring losses; that as such, it has to reduce its capitalization; that the profits it is earning are cash dividends from
RCC; that under the law, dividends are the absolute property of a stockholder like MCI and cannot be compelled to share it with creditors (like the
employees).
ISSUE: Whether or not the dividends in this case, as understood by MCI, cannot be made available to meet its employees economic demands.
HELD: No. As found by the labor arbiter, MCI is in fact making significant profits. MCI’s reduction of its capitalization is simply a scheme to avoid
negotiations with the labor union. It is therefore correct for the arbiter to order MCI to comply with the union’s demands.
It is true that cash dividends are the absolute property of the stockholders and cannot be made available for disposition to a corporation’s creditors.
However, this should be viewed in context. This is only true in the case of corporation distributing dividends to its stockholders. If this is the case (if the
dividends are still with the corporation, in this case RCC), then creditors cannot touch such dividends. But if the stockholder already receives the
dividends, then it becomes a profit on the part of the stockholder hence its creditors (like the employees) can make some demands out of it. In this
case, MCI is a stockholder of RCC. While RCC still has not distributed the dividends, creditors cannot demand it because such dividends are owned by
stockholders like MCI. But when MCI already receives the dividends, then MCI’s creditors can already demand share from the dividends because such
dividends are already the profits of the stockholder/MCI. So in this case, the employees can demand their share from said profits (not strictly viewed as
dividends now) by way of salary increase.

Pirovano v. De la Rama Steamship Co., Inc (1954)

Lessons Applicable: Ratification of Ultra Vires Acts (Corporate law)
FACTS:
 Enrico Pirovano, president of the defendant company, managed the companyuntil it became a multi-million corporation by the time Pirovano
was executed by the Japanese during the occupation.
 BOD Resolution: Out of the proceeds, the sum of P400,000 be set aside for equal division among the 4 minor children, convertible into shares
of stock of the De la Rama Steamship Company, at par and, for that purpose, that the present registered stockholders of the corporation be
requested to waive their preemptive right to 4,000 shares of the unissued stock of the company in order to enable each of the 4 minor heirs
to obtain 1,000 shares at par
 if the Pirovano children would given shares of stock, the voting strength of the 5 daughters of Don Esteban would be adversely affected - Mrs.
Pirovano would have a voting power twice that of her sisters
 Lourdes de la Rama wrote secretary of the corporation, Atty. Marcial Lichauco, asking him to cancel the waiver she supposedly gave of her
pre-emptive rights.
 The company ammended the resolution turning it into a loan with 5% interest payable when the obligation can be met
 The company revoked its donation of the life premium proceeds since it is not in compliance with the SEC
 Minor children of the late Enrico represented by their mother and judicial guardian demanded the payment of the credit due them as of
December 31, 1951, amounting to P564,980.89
 RTC: contract or donation is not ultra vires
ISSUE: W/N corporation donation of the proceeds of insurance policies is an ultra vires act
HELD: NO. valid and binding
 remunerative donation
 That which is made to a person in consideration of his merits or for services rendered to the donor, provided they do not constitute
recoverable debts, or that in which a burden less than the value of the thing given is imposed upon the donee, is also a donation."
(Art. 619, old Civil Code)
 In donations made to a person for services rendered to the donor, the donor's will is moved by acts which directly benefit him. The
motivating cause is gratitude, acknowledgment of a favor, a desire to compensate. (Sinco and Capistrano, The Civil Code, Vol. 1, p.
676; Manresa, 5th ed., pp. 72-73.)
 donation has reached the stage of perfection which is valid and binding upon the corporation and as such cannot be rescinded unless there is
exists legal grounds for doing so.
 donation was embodied in a resolution duly approved by the Board of Directors on January 6, 1947
 July 25, 1949: BOD approved the proposal of Mrs. Pirovano to buy the house at New Rochelle, New York, owned by a subsidiary of
the corporation at the costs of S75,000
 2 reasons given for the rescission of donation in the resolution of the corporation adopted on March 8, 1951 - valid and legal as to justify the
rescission
 corporation failed to comply with the conditions to which the above donation was made subject
 in the opinion of the Securities and Exchange Commission said donation is ultra vires
 articles of incorporation contain:
 To invest and deal with the moneys of the company and immediately required, in such manner as from time to time may be
determined.
 To aid in any other manner any person, association, or corporation of which any obligation or in which any interest is held by this
corporation or in the affairs or prosperity of which this corporation has a lawful interest.
 By ratification the infirmity of the corporate act has been obliterated thereby making it perfectly valid and enforceable. This is specially so if
the donation is not merely executory but executed and consummated and no creditors are prejudice, or if there are creditors affected, the
latter has expressly given their confirmity

Harden vs. Benguet Mining GR No. L-37331March 18, 1933

FACTS

BENGUET CONSOLIDATED MINING was organized in June 1903 as a sociedad anonima in conformity with Spanish Law. BALATOC MINING
CO. was organized in December 1925 as corporation in conformity with Act. 1459 (Corporation Law). Harden et al. are stockholders of Balatoc Mining.

When Balatoc Mining first organized the properties it acquired were largely undeveloped and the original stockholders were unable to supply
the means needed for profitable operation. (In short, naglisud ang corporation). In order to solve such problem, the company’s stockholders appointed
a committee for the purpose of interesting outside capital in the mine. By authority of a resolution of the board of directors, the committee
approached A.W. Beam, president & general manager of Benguet Company in order to secure capital necessary to the development of
the Balatoc property.

A contract was signed between the 2 companies which provide that BENGUET COMPANY was to proceed with the development of the Balatoc
property and in return BENGUET COMPANY would receive from BALATOC COMPANY shares of par value of P600,000 in payment for the first P600,000
be thus advanced to it by Benguet company.

The total cost incurred by BENGUET COMPANY in developing the Balatoc property was P1,417,952.15. In compensation for this work, a
certificate for P600,000 shares of stock of BALATOC COMPANY was given to BENGUET COMPANY and the excess value was paid to
Benguet by Balatoc in cash.

Due to the improvements made on the company’s property, the value of the shares of BALATOC increased in the market (from P1.00 to
P11.00) and the dividends of the company enriched its stockholders. As soon as the success of the company became apparent, Harden (owner of
thousands of shares of Balatoc) questioned the transfer of 600,000 shares to Benguet. Harden seeks to annul the certificate covering the
600,000 shares of stock transferred to Benguet.

Main argument of Harden: It is unlawful for the Benguet Company to hold any interest in a mining corporation because in the former
Corporation Law (Act of Congress 1916) there is a provision referring to mining corporations: “it shall be unlawful for any member of a corporation
engaged in agriculture or mining and for any corporation organized for any purpose except irrigation to be in any wise interested in any other
corporation engaged in agriculture or in mining.”

ISSUES

WON Harden et al can maintain an action based upon the violation of law supposedly committed by Benguet Company

If Benguet Company committed a violation, WON Benguet Company (sociedad anonima) is a corporation within the meaning of the language used by
US Congress and later by Philippine Congress, prohibiting mining corporations from becoming interested in another mining corporation

RULING

1. WON Harden et al can maintain an action based upon the violation of law supposedly committed by Benguet Company

BENGUET COMPANY committed NO CIVIL WRONG against the plaintiffs, and if a public wrong has been committed, the directors of the Balatoc
Company, and Harden himself were the active inducers of the commission of that wrong. THE CONTRACT WAS PERFORMED ON BOTH SIDES: by the
building of the Balatoc plant by the Benguet Company and the delivery to the latter of the certificate of 600,000 shares of the Balatoc Company.

The penalties imposed on what is now Sec. 190 (A) of the Corporation Law for the violation of the prohibition in question are of such nature that they
can be enforced only by a criminal prosecution or by an action of quo warranto. However these proceedings can be maintained only
by the Attorney General in representation of the government.

2. If Benguet Company committed a violation, WON Benguet Company (sociedad anonima) is a corporation within the meaning of the language used by
US Congress and later by Philippine Congress, prohibiting mining corporations from becoming interested in another mining corporation

Since the plaintiffs have no right of action against Benguet Company, the COURT REFUSED TO GO FURTHER INTO THE QUESTION AS TO WHETHER A
SOCIEDAD ANONIMA CREATED UNDER SPANISH LAW (Bengeut Company) IS A CORPORATION WITHIN THE PROHIBITORY PROVISION,

Sociedad Anonima is much like the English joint stock company with features resembling those of a partnership. Since it was the intention of
Congress to simulate the introduction of American Corporation into Philippine law in place of sociedad anonima, it was necessary to make certain
adjustments resulting from the continued co-existence for a time, of the 2 forms of commercial entities. Accordingly, in section 75 of the Corporation
Law, a provision is found making the sociedad anonima subject to the provisions of the Corporation Law "so far as such provisions may be applicable",
and giving to the sociedades anonimas previously created in the Islands the option to continue business as such or to reform and organize under the
provisions of the Corporation Law. Again, in section 191 of the Corporation Law, the Code of Commerce is repealed in so far as it relates to sociedades
anonimas. The purpose of the commission in repealing this part of the Code of Commerce was to compel commercial entities thereafter organized to
incorporate under the Corporation Law, unless they should prefer to adopt some form or other of the partnership.

The provision in Section 75 of the Act Congress of July 1, 1902 (Philippine Bill), generally prohibiting corporations engaged in mining and members of
such from being interested in any other corporation engaged in mining, was amended by section 7 of Act No. 3518 of the Philippine
Legislature, approved by Congress March 1, 1929.

As originally drawn, our Corporation Law (Act No. 1459) did not contain any appropriate clause directly penalizing the act of a corporation, a member of
a corporation, in acquiring an interest contrary to paragraph (5) of section 13 of the Act. The Philippine Legislature undertook to remedy this situation in
section 3 of Act No. 2792 of the Philippine Legislature, approved on February 18, 1919, but this provision was declared invalid by this court in
Government of the Philippine Islands vs. El Hogar Filipino (50 Phil., 399), for lack of an adequate title to the Act. Subsequently the Legislature
reenacted substantially the same penal provision in section 21 of Act No. 3518, under a title sufficiently broad to comprehend the subject
matter. This part of Act No. 3518 became effective upon approval by the Governor-General, on December 3, 1928, and it was therefore
in full force when the contract now in question was made.

This provision was inserted as a new section in the Corporation Law, forming section 190 (A) of said Act as it now stands. Omitting the proviso, which
seems not to be pertinent to the present controversy, said provision reads as follows:
SEC. 190 (A). Penalties. — The violation of any of the provisions of this Act and its amendments not otherwise penalized therein,
shall be punished by a fine of not more than five thousand pesos and by imprisonment for not more than five years, in the
discretion of the court. If the violation is committed by a corporation, the same shall, upon such violation being
proved, be dissolved by quo warranto proceedings instituted by the Attorney-General or by any provincial fiscal by
order of said Attorney-General: . . . .

Sort of Historical Background of Introduction of “Corporations” into the Philippines:

2. When the Philippines passed to the sovereignty of the US, Philippine Commission was drawn to the fact that there is no entity in Spanish law
which exactly corresponded to the notion of corporation in English and American law.

3. Philippine Congress thus enacted a general law authorizing the creation of Corporation Law (Act No. 1459). The purpose of the
commission was to introduce the American corporation into the Philippines as a standard of commercial entity. The statute is
a codification of American corporate law.

Stonehill vs. Diokno, 20 SCRA 383

FACTS:
Upon application of the prosecutors (respondent) several judges (respondent) issued on different dates a total of 42 search warrants against petitioners
(Stonehill et. al.) and/or corporations of which they were officers to search the persons of the petitioner and/or premises of their officers warehouses
and/or residences and to seize and take possession of the personal property which is the subject of the offense, stolen, or embezzled and proceeds of
fruits of the offense, or used or intended to be used or the means of committing the offense, which is described in the application as violation of Central
Bank Laws, Tariff and Customs Laws, Internal Revenue Code and the Revised Penal Code.
Petitioners filed with the Supreme Court this original action for certiorari, prohibition and mandamus and injunction and prayed that, pending final
disposition of the case, a writ of preliminary injunction be issued against the prosecutors, their agents and representatives from using the effect seized
or any copies thereof, in the deportation case and that thereafter, a decision be rendered quashing the contested search warrants and declaring the
same null and void. For being violative of the constitution and the Rules of court by: (1) not describing with particularity the documents, books and
things to be seized; (2) money not mentioned in the warrants were seized; (3) the warrants were issued to fish evidence for deportation cases filed
against the petitioner; (4) the searches and seizures were made in an illegal manner; and (5) the documents paper and cash money were not delivered
to the issuing courts for disposal in accordance with law.
In their answer, the prosecutors (respondent) alleged; (1) search warrants are valid and issued in accordance with law; (2) defects of said warrants,
were cured by petitioners consent; and (3) in any event the effects are admissible regardless of the irregularity.
The Court granted the petition and issued the writ of preliminary injunction. However by a resolution, the writ was partially lifted dissolving insofar as
paper and things seized from the offices of the corporations.

ISSUE:

“Whether or not the petitioners have the legal standing to assail the legality of search warrants issued against the corporation of which they were
officers.”

HELD:
Officers of certain corporations, from which the documents, papers, things were seized by means of search warrants, have no cause of action to assail
the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of
them in said corporations, and whatever the offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can be
contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and
cannot be availed of by third parties.
Officers of certain corporations cannot validly object to the use in evidence against them of the documents, papers and things seized from the offices
and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their
individual capacity.

Bache & Co. (Phil.) Inc. vs. Ruiz [GR L-32409, 27 February 1971]
Facts: On 24 February 1970, Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to Judge Vivencio M. Ruiz requesting the
issuance of a search warrant against Bache & Co. (Phil.), Inc. and Frederick E. Seggerman for violation of Section 46(a) of the National Internal
Revenue Code (NIRC), in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue
Examiner Rodolfo de Leon to make and file the application for search warrant which was attached to the letter. In the afternoon of the following day,
De Leon and his witness, Arturo Logronio, went to the Court of First Instance (CFI) of Rizal.
They brought with them the following papers: Vera’s letter-request; an application for search warrant already filled up but still unsigned by De
Leon; an affidavit of Logronio subscribed before De Leon; a deposition in printed form of Logronio already accomplished and signed by him but not yet
subscribed; and a search warrant already accomplished but still unsigned by Judge. At that time the Judge was hearing a certain case; so, by means of
a note, he instructed his Deputy Clerk of Court to take the depositions of De Leon and Logronio. After the session had adjourned, the Judge was
informed that the depositions had already been taken.
The stenographer, upon request of the Judge, read to him her stenographic notes; and thereafter, the Judge asked Logronio to take the oath
and warned him that if his deposition was found to be false and without legal basis, he could be charged for perjury. The Judge signed de Leon’s
application for search warrant and Logronio’s deposition. Search Warrant 2-M-70 was then signed by Judge and accordingly issued. 3 days later (a
Saturday), the BIR agents served the search warrant to the corporation and Seggerman at the offices of the corporation on Ayala Avenue, Makati, Rizal.
The corporation’s lawyers protested the search on the ground that no formal complaint or transcript of testimony was attached to the warrant.
The agents nevertheless proceeded with their search which yielded 6 boxes of documents. On 3 March 1970, the corporation and Seggerman filed a
petition with the Court of First Instance (CFI) of Rizal praying that the search warrant be quashed, dissolved or recalled, that preliminary prohibitory and
mandatory writs of injunction be issued, that the search warrant be declared null and void, and that Vera, Logronio, de Leon, et. al., be ordered to pay
the corporation and Seggerman, jointly and severally, damages and attorney’s fees. After hearing and on 29 July 1970, the court issued an order
dismissing the petition for dissolution of the search warrant.
In the meantime, or on 16 April 1970, the Bureau of Internal Revenue made tax assessments on the corporation in the total sum of
P2,594,729.97, partly, if not entirely, based on the documents thus seized. The corporation and Seggerman filed an action for certiorari, prohibition, and
mandamus.
Issue: Whether the corporation has the right to contest the legality of the seizure of documents from its office.
Held: The legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful
search and seizure is purely personal and cannot be availed of by third parties. In Stonehill, et al. vs. Diokno, et al. (GR L-19550, 19 June 1967; 20
SCRA 383) the Supreme Court impliedly recognized the right of a corporation to object against unreasonable searches and seizures; holding that the
corporations have their respective personalities, separate and distinct from the personality of the corporate officers, regardless of the amount of shares
of stock or the interest of each of them in said corporations, whatever, the offices they hold therein may be; and that the corporate officers therefore
may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the
corporations, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects
belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity.
The distinction between the Stonehill case and the present case is that: in the former case, only the officers of the various corporations in
whose offices documents, papers and effects were searched and seized were the petitioners; while in the latter, the corporation to whom the seized
documents belong, and whose rights have thereby been impaired, is itself a petitioner.
On that score, the corporation herein stands on a different footing from the corporations in Stonehill. Moreover, herein, the search warrant
was void inasmuch as First, there was no personal examination conducted by the Judge of the complainant (De Leon) and his witness (Logronio). The
Judge did not ask either of the two any question the answer to which could possibly be the basis for determining whether or not there was probable
cause against Bache & Co. and Seggerman.
The participation of the Judge in the proceedings which led to the issuance of Search Warrant 2-M-70 was thus limited to listening to the
stenographer’s readings of her notes, to a few words of warning against the commission of perjury, and to administering the oath to the complainant
and his witness. This cannot be consider a personal examination. Second, the search warrant was issued for more than one specific offense. The search
warrant was issued for at least 4 distinct offenses under the Tax Code.
The first is the violation of Section 46(a), Section 72 and Section 73 (the filing of income tax returns), which are interrelated. The second is
the violation of Section 53 (withholding of income taxes at source). The third is the violation of Section 208 (unlawful pursuit of business or occupation);
and the fourth is the violation of Section 209 (failure to make a return of receipts, sales, business or gross value of output actually removed or to pay
the tax due thereon).
Even in their classification the 6 provisions are embraced in 2 different titles: Sections 46(a), 53, 72 and 73 are under Title II (Income Tax);
while Sections 208 and 209 are under Title V (Privilege Tax on Business and Occupation). Lastly, the search warrant does not particularly describe the
things to be seized. Search Warrant No. 2-M-70 tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the
language used therein is so all-embracing as to include all conceivable records of the corporation, which, if seized, could possibly render its business
inoperative. Thus, Search Warrant 2-M-70 is null and void.

Mambulao Lumber vs. PNB, 22 SRA 359

FACTS: On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved for a loan of P100,000 only) with the Naga Branch of
defendant PNB. To secure payment, the plaintiff mortgaged a parcel of land, together with the buildings and improvements existing thereon, situated in
the poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte. The PNB released from the approved loan the sum of P27,500,
and another release of P15,500.

The plaintiff failed to pay the amortization on the amounts released to and received by it. It was found that the plaintiff had already stopped operation
about the end of 1957 or early part of 1958.

The unpaid obligation of the plaintiff as of September 22, 1961, amounted to P57,646.59, excluding attorney's fees. A foreclosure sale of the parcel of
land, together with the buildings and improvements thereon was, held on November 21, 1961, and the said property was sold to the PNB for the sum of
P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one year.

The plaintiff sent a letter reiterating its request that the foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged
indebtedness had been fully paid and that it could not be legally effected at a place other than the City of Manila.

The trial court sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6%
per annum. The plaintiff on appeal advanced that its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51
as concluded by the court a quo; hence, the proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on that date, added
to the sum of P738.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation, thereby rendering the subsequent
foreclosure sale of its chattels unlawful;

That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous opposition thereto, and in taking
possession thereof after the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to
plaintiff for damages and attorney's fees.

ISSUE: Whether or not PNB may be held liable to plaintiff Corporation for damages and attorney’s fees.

HELD: Herein appellant's claim for moral damages, seems to have no legal or factual basis. Obviously, an artificial person like herein appellant
corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. A corporation may have a good reputation which, if besmirched, may also be a ground for the
award of moral damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that herein appellant
had already ceased in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of
the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted
at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the
agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions were timely called by herein appellant,
and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary damages in the sum of
P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein appellant.

G.R. No. 108670 September 21, 1994

LBC EXPRESS, INC.vs. THE COURT OF APPEALS, ADOLFO M. CARLOTO, and RURAL BANK OF LABASON,INC.,
Facts: Private respondent Adolfo Carloto, incumbent President-Manager of private respondent Rural Bank of Labason, alleged that on November 12,
1984, he was in Cebu City transacting business with the Central Bank Regional Office. He was instructed to proceed to Manila on or before November
21, 1984 to follow-up the Rural Bank's plan of payment of rediscounting obligations with Central Bank's main office in Manila. 2 He then purchased a
round trip plane ticket to Manila. He also phoned his sister Elsie Carloto-Concha to send him ONE THOUSAND PESOS (P1,000.00) for his pocket money
in going to Manila and some rediscounting papers thru petitioner's LBC Office at Dipolog City. 3

On November 17, 1984, the documents arrived without the cashpack. Respondent Carloto made personal follow-ups on that same day, and also on
November 19 and 20, 1984 at LBC's office in Cebu but petitioner failed to deliver to him the cashpack.

Consequently, respondent Carloto said he was compelled to go to Dipolog City on November 24, 1984 to claim the money at LBC's office. His effort was
once more in vain. On November 27, 1984, he went back to Cebu City at LBC's office. He was, however, advised that the money has been returned to
LBC's office in Dipolog City upon shipper's request. Again, he demanded for the ONE THOUSAND PESOS (P1,000.00) and refund of FORTY-NINE PESOS
(P49.00) LBC revenue charges. He received the money only on December 15, 1984 less the revenue charges.

Respondent Carloto claimed that because of the delay in the transmittal of the cashpack, he failed to submit the rediscounting documents to Central
Bank on time. As a consequence, his rural bank was made to pay the Central Bank THIRTY-TWO THOUSAND PESOS (P32,000.00) as penalty
interest. 4 He allegedly suffered embarrassment and humiliation.

Claiming that petitioner LBC wantonly and recklessly disregarded its obligation, respondent Carloto instituted an action for Damages Arising from Non-
performance of Obligation

On appeal, respondent court modified the judgment by deleting the award of attorney's fees. Petitioner's Motion for Reconsideration was denied in a
Resolution dated January 11, 1993.

ISSUE: Whether or not respondent Rural Bank of Labason Inc., being an artificial person should be awarded moral damages.

HELD:No. The respondent court erred in awarding moral damages to the Rural Bank of Labason, Inc., an artificial person.

Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury. 7 A corporation, being an artificial person and having existence only in legal contemplation, has no
feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. 8 Mental suffering can be experienced only by
one having a nervous system and it flows from real ills, sorrows, and griefs of life 9 — all of which cannot be suffered by respondent bank as an artificial
person.

ABS-CBN BROADCASTING CORP. v. CA, REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO
(301 SCRA 589)
Date: January 21, 1999
Facts:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby VIVA gave ABS-CBN an exclusive right to exhibit some VIVA films.
According to the agreement, ABS-CBN shall have the right of first refusal to the next 24 VIVA films for TV telecast under such terms as may be agreed
upon by the parties, however, such right shall be exercised by ABS-CBN from the actual offer in writing.

Sometime in December 1991, VIVA, through Vicente Del Rosario (Executive Producer), offered ABS-CBN through VP Charo Santos-Concio, a
list of 3 film packages from which ABS-CBN may exercise its right of first refusal. ABS-CBN, however through Mrs. Concio, tick off only 10 titles they can
purchase among which is the film “Maging Sino Ka Man” which is one of the subjects of the present case, therefore, it did not accept the said list as per
the rejection letter authored by Mrs. Concio sent to Del Rosario.

Subsequently, Del Rosario approached Mrs. Concio with another list consisting of 52 original movie titles and 104 re-runs, proposing to sell to
ABS-CBN airing rights for P60M (P30M in cash and P30M worth of television spots). Del Rosario and ABS-CBN’s General Manager, Eugenio Lopez III,
met at the Tamarind Grill Restaurant in QC to discuss the package proposal but to no avail.

Four days later, Del Rosario and Mr. Graciano Gozon, Senior VP of Finance of Republic Broadcasting Corporation (RBS/Channel 7) discussed
the terms and conditions of VIVA’s offer. A day after that, Mrs. Concio sent the draft of the contract between ABS-CBN and VIVA which contained a
counter-proposal covering 53 films for P35M. VIVA’s Board of Directors rejected the counter-proposal as it would not sell anything less than the package
of 104 films for P60M. After said rejection, ABS-CBN closed a deal with RBS including the 14 films previously ticked off by ABS-CBN.

Consequently, ABS-CBN filed a complaint for specific performance with prayer for a writ of preliminary injunction and/or TRO against RBS,
VIVA and Del Rosario. RTC then enjoined the latter from airing the subject films. RBS posted a P30M counterbond to dissolve the injunction. Later on,
the trial court as well as the CA dismissed the complaint holding that there was no meeting of minds between ABS-CBN and VIVA, hence, there was no
basis for ABS-CBN’s demand, furthermore, the right of first refusal had previously been exercised.

Hence, the present petition, ABS-CBN argued that an agreement was made during the meeting of Mr. Lopez and Del Rosario jotted down on a
“napkin” (this was never produced in court). Moreover, it had yet to fully exercise its right of first refusal since only 10 titles were chosen from the first
list. As to actual, moral and exemplary damages, there was no clear basis in awarding the same.

Issue: WON a contract was perfected between ABS-CBN and VIVA and WON moral damages may be awarded to a corporation

Held: Both NO. Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence between the offer
and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the
offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and
without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a
rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not
sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer.

After Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN to discuss the package of films, ABS-CBN, sent through Ms. Concio, counter-proposal
in the form a draft contract. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del
Rosario. Clearly, there was no acceptance of VIVA’s offer, for it was met by a counter-offer which substantially varied the terms of the offer.

In the case at bar, 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 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-CBN’s counter-offer was best evidenced by his submission of the draft contract to
VIVA’s Board of Directors for the latter’s approval. In any event, there was between Del Rosario and Lopez III no meeting of minds.

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 contact binding upon Viva.
However, the Court find for ABS-CBN on the issue of damages. Moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no
senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one having a
nervous system. The statement that a corporation may recover moral damages if it “has a good reputation that is debased, resulting in social
humiliation” is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.

Filipinas Broadcasting Network vs. Ago Medical and Educational Center, 448 SCRA 413
Facts: Expos is a radio documentary program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre). Expos is aired every morning
over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities and other Bicol
areas.
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against
Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the broadcasts were defamatory,
AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for damages against FBNI, Rima and Alegre on 27 February
1990.

The complaint further alleged that AMEC is a reputable learning institution. With the supposed expose, FBNI, Rima and Alegre transmitted
malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBNI as defendant for allegedly failing to
exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre.

On 14 December 1992, the trial court rendered a Decision ] finding FBNI and Alegre liable for libel except Rima. In holding FBNI liable for libel, the
trial court found that FBNI failed to exercise diligence in the selection and supervision of its employees.

The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre.
Issues: Whether or not the broadcasts are libelous.
Whether or not AMEC is entitled to moral damages.
Whether or not the award of attorneys fees is proper.

Ruling: 1. A libel is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or
circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is dead.

Every defamatory imputation is presumed malicious. Rima and Alegre failed to show adequately their good intention and justifiable motive in airing the
supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre should have presented the public issues free
from inaccurate and misleading information. Hearing the students alleged complaints a month before the expos, they had sufficient time to verify their
sources and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did they inquire about
nor confirm the purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to
verify his report from an alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of the students because they
were many and not because there is proof that what they are saying is true. This plainly shows Rima and Alegres reckless disregard of whether their
report was true or not.

Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as long as it
might reasonably be inferred from the facts. However, the comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are
not privileged and remain libelous per se. The broadcasts also violate the Radio Code of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio
Code). Item I(B) of the Radio Code provides:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information. x x x
Furthermore, the station shall strive to present balanced discussion of issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they
conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good
order in the presentation of public affairs and public issues.[36]

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing practitioners in
the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The Radio
Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured
for lapses, liability and sanctions.

The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like other
professionals. A professional code of conduct provides the standards for determining whether a person has acted justly, honestly and with good faith in
the exercise of his rights and performance of his duties as required by Article 19 of the Civil Code. A professional code of conduct also provides the
standards for determining whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs
under Article 21 of the Civil Code.

2. FBNI contends that AMEC is not entitled to moral damages because it is a corporation.

A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al . to
justify the award of moral damages. However, the Courts statement in Mambulao that a corporation may have a good reputation which, if besmirched,
may also be a ground for the award of moral damages is an obiter dictum.

Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This provision expressly authorizes the recovery
of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical
person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.

Moreover, where the broadcast is libelous per se, the law implies damages. In such a case, evidence of an honest mistake or the want of
character or reputation of the party libeled goes only in mitigation of damages. [46] Neither in such a case is the plaintiff required to introduce evidence of
actual damages as a condition precedent to the recovery of some damages. In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to
moral damages.

However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se,
AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages from P300,000
to P150,000.

3. The award of attorney’s fees is not proper.

AMEC failed to justify satisfactorily its claim for attorney’s fees. AMEC did not adduce evidence to warrant the award of attorney’s fees. Moreover,
both the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of attorney’s fees.

In Inter-Asia Investment Industries, Inc. v. Court of Appeals we held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be awarded
every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable
justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture . In all events, the
court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the award of attorney’s fees.
[51]
(Emphasis supplied)
Petition denied.