Constitutional Rights of Corporations
denied the consummation of a lease contract
STONEHILL V. DIOKNO: 42 search warrants
were issued against petitioners seeking to
search the persons of the Stonehill et al. and the
premises of various corporations of which the
same were officers, in relation to alleged
violations of Central Bank Laws, as well as other
tariff, customs and tax laws. RD: 1. No standing-
even as officers, petitioners have no standing to
assail the legality of the search warrants as they
have a distinct personality from the corporation
they represent. It can only be invoked by the
corporation itself. 2. Nevertheless, the warrants
issued were in the nature of general warrants as
it lacked the allegation of a specific offense. In
addition, the warrants issued were also in
connection with more than one allegation, in
contravention of the Rules of Court, as well as
lacking in particularity of things or papers to be
seized. (cf. Moncado-non-exclusionary rule
abandoned).
BASECO V. PCGG: The PCGG was tasked with
the sequestration of petitioner private
corporation through Executive Orders.
Accordingly, the former sought to obtain
various corporate books and documents to
achieve its purpose of taking over the
corporation. BASECO invokes the right against
self-incrimination. RD: 1. Juridical persons-
being creatures of the State vested with certain
privileges and franchises are subject to the laws
of the state and the limitations of its
charter(Wilson v. US). In the exercise of its
sovereignty, through a right reserved in the
legislature, it has the power to investigate
whether such a franchise has been abused and
accordingly, demand the production of its books,
documents and papers.
Liability for Torts
PNB V .CA: PHILAMGEN, as surety seeks to
recover an amount paid to PNB, from a bond
executed in favor of Tapnio et al, the same
being secured by the standing crops of the
latter. Tapnio avers however, that the bank-
having a lien on the crop-placed obstacles that
over her excess sugar quota. PNB through its
board of directors had wanted to raise the
rental rate before granting its approval to the
lease contract. This in turn, resulted in a loss of
income for Tapnio as the potential lessee
eventually refused to agree to the proposed
terms. RD: CF. Article 21, CC- Having known
that the agricultural year was about to expire
and the quota would be wasted if unused, the
bank failed to observe the required diligence
and prudence and subsequently caused injury
to Tapnio as the latter was unable to utilize the
same. “A corporation is civilly liable in the same
manner as natural persons for torts, because
"generally speaking, the rules governing the
liability of a principal or master for a tort
committed by an agent or servant are the same
whether the principal or master be a natural
person or a corporation, and whether the
servant or agent be a natural or artificial person.
All of the authorities agree that a principal or
master is liable for every tort which he expressly
directs or authorizes, and this is just as true of a
corporation as of a natural person, A
corporation is liable, therefore, whenever a
tortious act is committed by an officer or agent
under express direction or authority from the
stockholders or members acting as a body, or,
generally, from the directors as the governing
body’”.
Criminal Liability of a Corporation
PEOPLE V. TAN BOON KING: Defendant was the
manager of a corporation who had failed to pay
the correct taxes. RD: A corporation can only
act through its agents and officers and when the
same is liable for a felony, everyone involved in
it may be punished.
Entitlement to Moral Damages
MAMBULAO V. PNB: Plaintiff corporation
applied for a loan with the defendant bank and
despite repeated demands, it failed to fulfill its
obligation to pay. Accordingly, PNB requested
the co-defendant sheriffs herein to foreclose
the mortgaged property of the corporation.
Mambulao Lumber seeks moral damages as the
sheriffs sold the properties in Camarines Norte
as opposed to have the same conducted in
Manila, as provided for in the agreement. RD:
An artificial person such as a corporation may
not suffer from anguish, wounded feelings,
shock or humiliation which are the bases for
moral damages. Moreover, it had already
ceased its operations by the time
defendant-sheriffs took possession of its
properties and any damage to its reputation
would be irrelevant (NOTA BENE:Court granted
exemplary for the sheriffs’ acts).
ASSET PRIVATIZATION TRUST V. CA: The huge
loans obtained by MMIC eventually led to its
foreclosure. Cabarrus, a stockholder thereof,
initiated a derivative suit and along MMIC, was
granted moral damages by the Arbitration
Commission, premised upon the theory that the
assets seized by the government in foreclosure
proceedings belonged to another corporation
that was predominantly owned by Cabarrus. RD:
Despite being a derivative suit, MMIC was never
impleaded and was a non-party; as such, it was
improper for it to receive an award of moral
damages. More notably, due to its inability to
settle its obligations, it had no reputation to
protect- its name would not be besmirched by
the proceedings. Anent Cabarrus, the award
was improper as well, the action involved being
one in behalf of MMIC, an entity distinct from
its shareholders.
ABS-CBN V. CA: An injunction was filed by
ABS-CBN to prevent RBS from exclusively airing
Viva films, on account that there existed a
perfected contract between ABS-CBN and VIVA
when its representative Del Rosario had already
agreed to the proposed terms. RBS filed for a
suit for moral damages alleging that its
reputation had been besmirched when it failed
to air the movies it had promised its viewers. RD:
1. The Court had dismissed the pronouncement
in Mambulao as mere obiter and upheld the
doctrine that corporations may not be the
subject of moral damages as it is unable to
suffer anguish or wounded feeling. 2. Moreover,
moral damages are only awarded on the
existence of malice or bad faith (cf. Human
Relation Provisions)- it was deemed that
ABS-CBN had acted properly and in seeking a
relief for injunction, was truly convinced of the
merit of its case, absent malice.
JARDINE DAVIES V. CA: Purefoods, after due
bidding, granted a contract to FEMSCO for the
installation of generators. Subsequently, the
former unilaterally rescinded the contract and
awarded the same to Jardine Davies, thereby
injuring FEMSCO. The court a quo granted moral
damages to FEMSCO on the premise that the
latter’s reputation had been tarnished as it had
abruptly canceled orders from its suppliers. RD:
Due to the rescission of the contract, FEMSCO
suffered damage and correctly deserved the
award. It had ordered supplies due to the
project’s urgency and had its corporate identity
besmirched when it duly canceled the same.
MERALCO V. TEAM ELECTRONICS: Meralco
alleges that respondent had tampered with its
electrical meters, resulting in incorrect readings.
Respondent corporation denied the allegations,
and refused to pay the differential billings. As
such, petitioner disconnected the latter’s
electricity. RD: While the Court for the most
part agreed with TEAM Electronics, it deleted
the award of moral damages. As a general rule,
corporations may not be awarded the same as
they are incapable of suffering wounded
feelings. An exception however exists in
instances where a corporation’s reputation is
besmirched and such claims must be duly
proven. In this instance, the deletion of the
award is proper as the respondent corporation
never adduced evidence to support the grant of
moral damages.
Nationality of a Corporation
ROD RIZAL V. UNG SUI SI TEMPLE: Petitioner
Registrar refused the registration of a donation
of land in favor of respondents, an unregistered
religious organization whose three trustees
were Chinese. RD: The refusal was proper, impossible crime may also not be appreciated
pursuant to the Constitutional prohibition as the alleged prohibition does not exist.
limiting the alienation of lands to Filipino
nationals or corporations at least sixty-percent
owned by Filipinos. It is irrelevant that the
respondent was a religious organization and had
no capital stock as its controlling membership FILIPINAS COMPANIA V. CHRISTERN:
were of foreign nationality. Respondent corporation sought the satisfaction
of its claim against insurer-petitioner. Filipinas
denied the same on the ground that the
contested policy had ceased to be in effect
RCA DAVAO V. ROD DAVAO: Rodis executed a
upon the declaration of war against Germany
deed of sale in favor of petitioner. The
and pursuant thereto, as Christern was
respondent Registrar had refused on account
controlled by German citizens, was an enemy.
that the corporation had failed to comply with
The prevailing law at the time- the Philippine
the Constitutional requirement of having
Insurance Law- denied insurance coverage to
sixty-percent of its stock being owned by
those considered as public enemies. RD: 1.
Filipinos. RD: 1. The RCA of Davao is a
The Court applied the controlling test (Clark v.
corporation sole, comprised of one person and
Ubersee) and determined that as the majority
his successors, who, for perpetuity, enjoy
of shareholders who controlled Christern, et al.
various capacities and advantages. 2. A
Incorporated were Germans, the same should
corporation sole has no citizenship and is the
be treated as an enemy corporation. 2. As the
administrator of various temporalities in behalf
insured goods had perished after the
of the faithful. 3. The Corporation Law expressly
corporation had become an enemy, it cannot
allows the registration of lands by a corporation
avail of the indemnity provided by the insurance
sole.
contract. 3. In the interest of equity, premiums
paid after the corporation had become an
enemy should be returned.
PEOPLE V. QUASHA: Defendant was a member
of the Philippine Bar found guilty of falsification,
having made it to appear that a certain Baylon
PALTING V. SAN JOSE: Respondent San Jose
owned sixty per centum of Pacific Airways. It is
Petroleum, a Panamanian corporation, filed an
alleged that Baylon’s share was paid for by an
application to have its shares traded in the
American and was a mere trustee of foreigners,
Philippines, the proceeds therefrom to be
resulting in a contravention of the
applied to the operations of San Jose Oil, a
Constitutional prohibition against foreign
domestic entity. Palting et al. contest the
ownership. As such, the defendant interposes
subsequent authorization granted to the
this appeal. RD: 1. For falsification to be
respondent on the ground that the agreement
appreciated, it must be shown that there
between SJP and SJO would be in contravention
existed a) an obligation to disclose the truth;
of the Constitutional prohibitions on foreign
and b) an intent to injure a third person.
ownership and other laws, as SJP owns 90% of
Quasha however, was under no obligation to
SJO. In response, San Jose cites the
reveal that Baylon was a mere trustee as the
Laurel-Langley Agreement as basis for its parity
Constitutional prohibition refers to existing
agreement. RD: 1. The Constitution restricts the
entities, and avoids the formation of public
ownership of corporations engaged in the
utilities with foreign capital. 2. In addition, a
exploitation of natural resources to companies
corporation entirely formed with foreign capital
with sixty percent Filipino ownership, alongside
may subsequently transfer the same to Filipinos,
American citizens or corporations (by virtue of
in compliance with the law. The important thing
the parity amendment). As the respondent
is that it complies with such nationality
corporation herein is of Panamanian origin and
requirements upon the application for its
is even further owned by two Venezuelan
franchise or any other authority. 3. An
companies, they fall beyond the purview of
what the law allows. 2. In addition, the
Corporation Law also forbade another mining
company from acquiring another.
NARRA NICKEL V. REDMONT: Respondent
domestic corporation Redmont Mining sought
to explore several mining areas in Palawan. It
learned however that such areas were already
covered by Mineral Production Sharing
Agreement (MPSA) applications from petitioner
corporations Narra, Tesoro, and McArthur. The
former then contested to have such
applications denied, on the ground that MBMI,
a wholly Canadian owned corporation, had
ownership through various companies of at
least forty percent, each, of
petitioner-corporations. Petitioners assail the
objection on the premise that (a) they have
complied with ownership requirements as they
are at least sixty percent owned by Filipinos;
and (b) the issue of nationality is immaterial as
they have converted their prior applications for
MPAAs to applications for Financial or Technical
Assistance Agreements (FTAA) which are
granted to foreign owned corporations. RD:
(2014): 1. The conversion of applications is an
admission of the petitioners’ want of
qualifications to engage in mining activities.
Moreover, it was noted that the Office of the
President had revoked such FTAAs upon the
discovery of misrepresentations and falsehoods
in their applications. 2. Corporate layering is
admittedly allowed by the Foreign Investments
Act but not when it used to contravene
Constitutional prohibitions. Accordingly, when
such a structure is present (or when the
sixty-forty proportion is in doubt), the stricter
“Grandfather Rule” - where ownership in an
investing corporation is eventually traced
(grandfathered) to determine the total
percentage of ownership- is used. In essence,
only the actual percentage of Filipino owned
shares in an investing corporation s counted 3
The liberal “Control Test”- where as long as it is
shown that the investing corporation is at least
sixty percent owned by Filipinos- may be used
side by side with the Grandfather Rule. 4. Joint
ventures find no application in the instant case
at bar. On the contrary, it was clear that MBMI
through various corporations and by means of
structuring equity, had control of at least sixty
percent of petitioner corporations. (2015): The
motion for reconsideration is denied. The
“Control Test” and the “Grandfather Rule” may
be used side by side and should complement
each other.
GAMBOA V. TEVES: The present petition was
commenced by PLDT stockholder Gamboa,
seeking to annul the sale of the Philippine
government of PTIC shares to
Metro-Pacific, an affiliate of First Pacific, a Hong
Kong based holding company who is also a
shareholder of PLDT. It is alleged that the sale
involves a transfer of PLDT shares to First Pacific,
thereby increasing the latter’s holdings to a
threshold contravening the Constitutional
prohibition on foreign ownership. The main
contention in this case whether the term
“capital” in such a prohibition merely involves
common shares alone or total outstanding
capital stock (including non-voting preferred
shares). RD: (2011): 1. The term “capital” in the
Constitution refers to those shares which have
voting rights (including preferred shares) as it is
through voting by which control over a
corporation is exercised. Clearly, PLDT’s articles
provided that preferred shareholders would be
deprived of voting rights and should therefore
be excluded from the computation of Filipinos
for the purposes of determining compliance. 2.
Mere legal title to shares is insufficient; full
beneficial ownership must be considered in
ascertaining compliance with the Constitutional
mandate. (2012): Motion for reconsideration
denied.
ROY III V. HERBOSA: Respondent Herbosa, as
Chairperson of the SEC, issued the disputed
memo pursuant to the Gamboa decision,
mandating that corporations comply with BOTH
Filipino ownership requirements on the (a) the
total number of outstanding shares of stock
entitled to vote in the election of directors
(voting rights); AND (b) the total number of
outstanding shares of stock, whether or not
entitled to vote in the election of directors
(beneficial ownership-either through voting
power, investment power, or both). Moreover,
the SEC ruling that the PLDT is compliant with
foreign ownership requirements is also assailed.
RD: 1. The assailed memorandum by the SEC
is fully compliant with the Gamboa decision.
The latter contemplates of both the voting
rights requirements as well as the full beneficial
ownership test in the determination of a
corporation’s nationality. 2. The assailed
decision is non-existent as the SEC has not made
any determination anent PLDT’s compliance or
want thereof.
Classification of a Corporation
PSPCA V. COA: Petitioner was incorporated as
juridical entity more than a hundred years ago
pursuant to Act 1285, antedating the
Corporation Law as well as the SEC, for the
purpose of promoting animal welfare and the
enforcement of animal protection laws. It was
previously imbued with the powers to
apprehend violators of animal protection laws
as well collect fines in relation thereto, the
same being subsequently transferred to local
police entities. Accordingly, it became the
subject of the disputed COA audit, on the
ground that it was a government agency subject
to its powers. RD: 1. The “charter test” as
introduced by the 1935 Constitution finds no
application to petitioner corporation as it was
incorporated prior to the same. It cannot be
given retroactive effect as the present situation
does not fall within the allowed exceptions. 2.
PSPCA, despite a want of a general corporation
law, is a private entity with public functions in
the form of a quasi-public corporation. This is
shown by (a) the deprivation of its policing
powers by virtue of Statute; (b) the lack of a
government representative on its board or any
form of control or supervision from any State
agency, aside those which are general in nature,
such as reportorial requirements to the Civil
Governor, now inherited by the President; (c) its
enrolment with the SSS,
FUNA V. MECO: Constrained by the lack of
diplomatic relations between Taiwan and the
Philippines, the Manila Economic and Cultural
Office (MECO) was established for the purpose
of establishing friendly relations and unofficial
ties with the Republic of China, including certain
consular functions as well as overseeing the
welfare of OFW’s in Taiwan. Petitioner sought
records from the COA pertaining to MECO’s
audits and in the absence thereof, wants the
Court to compel the former to conduct one.
RD:1. Pursuant to the Administrative Code, as
well as the GOCC Governance Act, the law
impresses three attributes for an entity to
become a GOCC, namely: (a) it must be a stock
or non-stock corporation; (b) it must perform
public functions; and (c) the government must
have ownership thereof. While the MECO
complies with the first two attributes, the
government lacks a controlling interest over the
same- Presidential letters requesting the
appointment of persons to its board are mere
recommendations . In addition, it was
incorporated under the Corporation Code. As
such, given the peculiar circumstances
regarding its creation and operation, it is a sui
generis entity entrusted with the promotion of
unofficial relations with Taiwan. 2. Nevertheless,
the verification and consular fees it collects
makes it subject to COA audit pursuant to the
Administrative Code.
CIR V. CLUB FILIPINO: Respondent corporation
was assessed taxes and charged with penalties
relating thereto. It is alleged that Club Filipino
had not paid percentage taxes arising from the
operation of a bar and a restaurant on its
premises. RD: For a stock corporation to exist, it
must have (1) a capital stock divided into shares
and (2) an authority to distribute to the holders
of such shares, dividends or allotments of the
surplus profits on the basis of the shares held
(sec. 3, Act No. 1459). Despite having its capital
stock divided into shares, nowhere in its articles
nor in its by-laws does an authority to distribute
dividends exist. Its operation of a bar and a
restaurant remains incidental to its status as a
fraternal, civic, non-profit, and non-stock entity,
and as such, may not be assessed taxes.
Paul Pierce Cases
CONCEPT V. NLRC: Private respondents were
terminated by petitioner corporation. They filed
and eventually won an illegal dismissal suit. In
the process of executing the judgment, one of
the properties involved was claimed to have
been outside the purview of the same, as
Concept Builders had now ceased its business
and the properties were now occupied by or
belonged to Hydro Philippines. RD: A
perusal of both corporations show an identity in
shareholders and directors, and similarity in
books and records and business methods.
Clearly, Concept ceased its business operations
to evade the award due the workers while
having Hydro continued its ventures. The
“alter-ego” therefore should be appreciated.
(NOTA BENE: Requisites (a): Complete control
not merely through a majority but dominance of
finances and business practices; (b) The control
is used to perpetuate a fraud or a wrong or do
a violation of law or an unjust act; (c) The
control and breach of duty is the proximate
cause of the injury.)
KUKAN V. REYES: Private respondent Morales
won favorable judgment against Kukan for its
inability to pay amounts due him. In the
execution of judgment, KIC opposed the levying
of properties it allegedly owned on the ground
that its right to due process was violated and
that it was different entity from Kukan.
International. RD: 1. The courts a quo erred in
ruling against respondent as they both never
acquired jurisdiction over KIC as the same was
never impleaded in the present issue. 2. There is
lack of proof to warrant the piercing of the
corporate veil. While Michael Chan may be the
majority owner of both entities, the same may
not be sufficient to establish fraud. Moreover,
there was no proof of a transfer of properties
from Kukan to KIC for the purpose of avoiding
its liabilities.
NASECO GUARDS ASSOCIATION V. NASECO:
NASECO was a subsidiary of PNB established for
the purpose of proving manpower and security
services for various clients. Petitioner
represented the security guards of NASECO. A
dispute concerning the CBA arose between the
two parties. RD: PNB cannot be held liable for
claims against NASECO absent a showing of
fraud or an illegal intent designed to subvert the
law.
G.HOLDINGS V. NAMAWU: G Holdings
extended financial arrangements to benefit
Maricalum Mining, secured by the latter’s
properties. The former eventually foreclosed on
the same. Sometime later, a labor dispute arose
between Maricalum and its employees, with the
later seeking to enforce the favorable judgment
against the properties that had been apparently
sold to G. Holdings. RD: The mortgages were
not a sham- they involved the Philippine
government and were executed almost four
years prior the dispute. The deed relied on by
respondents was a mere offshoot of the notes
agreed upon sometime earlier.
PEA-PGTWO V. NLRC: The Gonzales family
owned two corporations Pantranco and Macris
Realty. Both companies eventually became
distressed and creditors eventually took over.
While the former eventually folded, the later
became a subsidiary of PNB-PNB Madecor. The
pertinent question at bar involves the propriety
of attaching the new entity’s assets to satisfy
Pantranco’s obligation against its former
employees. RD: The properties involved were
not owned by the judgment debtor Pantranco
but rather, of Macris the predecessor of
Madecor. Accordingly, absent the showing that
both corporations were mere vehicles of
another used to perpetuate fraud, the veil of
corporate fiction may not be Paul Pierced!
HEIRS OF UY V. IE BANK: Petitioners herein are
heirs of Fe Uy, shareholder of Goldkey.
Respondent bank executed loans in favor of
another firm, Hammer, where Uy’s husband,
Manuel Chua, served as its president and
general manager. The obligations were secured
by properties owned by Goldkey and evinced by
document later found to have Uy’s forged
signature. As the transactions were left unpaid,
respondent bank filed suit against everyone,
and obtained a judgment that provided for the
liability of Uy and Goldkey. RD: 1. For the
doctrine of piercing the corporate veil to apply,
it must be alleged and proven that fraud and
bad faith were attendant,or that the officers
involved knowingly assented to unlawful acts. It
is therefore inexplicable why absent even an
allegation thereto, would Uy be personally held
liable, more so, that her signature was forged. 2.
Goldkey’s liability remains as it chose to be an
alter ego of Hammer in holding itself to be
surety for the latter’s obligations. Additionally,
both corporations share an identity in officers,
shareholders, business practices and assets.
Clearly, the former was a mere adjunct of the
latter, designed to evade its obligations.
LANUZA JR. BF CORPORATION: Respondent BF
Corporation did not receive amounts due from
its co-respondent Shangri-La, payment for
constructing a parking lot. Pursuant to an
arbitration clause in the contract for the
purpose of resolving the dispute, BF sought to
have petitioners impleaded as parties as well
the same being held severally liable alongside
Shangri-La. RD: Absent a showing of fraud or
bad faith or malice, the separate identities of a
corporation and its directors should not be
disturbed. Additionally, a party that did not bind
himself personally to an arbitration proceeding
may not be subsequently forced to participate
in the same.
WPM TRADING V. LABAYEN: Respondent
Labayen entered into a contract to operate
Quickbite, a restaurant owned by WPM Trading.
In the course thereof, Labayen contracted CLN
to renovate the establishment. CLN was not
able to receive payment, and instituted a suit
against Labayen. After an adverse judgment,
respondent in turn sought indemnity against
WPM and its president Manlapaz, claiming it
was the latter and CLN who were responsible
for the contract. She obtained a favorable
decision and Manlapaz was deemed to be
solidarily liable. RD: While Manlapaz was the
majority stockholder as well as having
simultaneously served as it President and
Treasurer, there is no showing that his control
was used to perpetuate fraud. All the parties
knew that the agreement was for the purpose
of renovating the restaurant owned by WPM.
Therefore, it cannot be said that the latter was
merely a vehicle of Manlapaz to commit fraud
or wrongdoing.
PIONEER INSURANCE V. MORNING STAR:
Morning Star was a travel agency that failed to
remit sums due to its Canadian partner, IATA. As
the amounts were covered by an insurance
policy, IATA proceeded against petitioner
Pioneer, who for their part, settled the claims.
By way of subrogation, Pioneer filed suit against
respondents. While it obtained a favorable
judgment, the Court of Appeals modified the
decision on appeal, absolving individual
respondents of their solidary liability. Pioneer
now seeks recourse, claiming the transaction
was attended by fraud due to the large amounts
of indebtedness incurred. RD: While the
incurring of debts during a distressed period in a
corporations lifetime may be considered as a
badge of fraud, the same must be substantiated
by evidence. Aside from the testimony of a
certain Attorney Taggueg whose relationship
with the firm was unclear, Pioneer failed to
present financial statement to establish
Morning Star’s difficulties. In addition, the
petitioner did not introduce evidence of
Morning Star’s ownership over properties that
were allegedly of a dubious nature.
GUILLERMO V. USON:
Accounting-clerk-respondent Uson won an
illegal dismissal case against Royal Class Venture.
As president and general manager of the now
dissolved firm, petitioner Guillermo was held to
be solidarily liable during the execution of
judgment. Petitioner contests the same on the
ground that the he was belatedly informed of
the fact and that other directors and officers
were not pursued. RD: 1. As a general rule,
officers may be not be held personally liable for
the tortious acts of a corporation. It is only upon
showing of fraud, bad faith or malice that such
liability attaches. Accordingly, Guillermo, as
Royal Class’ president and the officer involved
with its day-to-day operations, was
responsible for the wrongful dismissal of the
respondent and the subsequent dissolution of
the firm to avoid its obligation. 2. Jurisprudence,
using the “doctrine of piercing the corporate
veil” has long established the precedent that
parties who have not been impleaded in a case
may still be held liable during the execution of
the judgement therefrom.

Corporate contract law
HALL V. PICCIO: The parties herein agreed to
establish Far Eastern Lumber and Commercial
and Co. However after disputes and
disagreements, respondents Brown et al. sought
to have the entity- which they claimed was an
unregistered partnership- dissolved while
petitioners assailed the suit on the ground of a
lack of jurisdiction. Respondent judge found in
favor of Brown et al. and ordered the
dissolution of the enterprise. The petitioners
filed a counter-bond to discharge the receiver
but the judge refused. RD: As the SEC had not
yet issued a certificate of registration for the
entity involved, the parties herein may not
claim to be in “good faith” as a corporation. For
such a claim to prosper, errors and irregularities
must exist as opposed to an utter want
regarding its registration. Accordingly, the cited
provision in the Corporation Law anent de facto
corporations finds no application. This is a
dispute between shareholders of an
unregistered entity and the court a quo
correctly took cognizance of the controversy.
INTERNATIONAL EXPRESS TRAVEL V. CA:
Defendant Kahn served as the president of the
Philippine Football Federation and entered into
an agreement with petitioner corporation
wherein the latter would provide travel services
for officials and athletes. Petitioner despite
repeated demands, failed to secure payment
from Kahn and the PFF. RD: A voluntary
unincorporated association, like defendant
Federation has no power to enter into, or to
ratify a contract. The contract entered into by
its officers or agents on behalf of such
association is binding or, as enforceable against
it. The officers or agents are themselves
personally liable. While the law (the Revised
Charter of the Philippine Amateur Athletic
Association, RA 3135) provides for the creations
of entities called “National Sporting
Associations”, the same must be recognized and
accredited before it could acquire a juridical
personality. Nowhere in the PFF’s charter nor in
the evidence adduced by Khan could such an
accreditation be found, resulting in the PFF’s
status as an unincorporated association.
LOZANO V. DELOS SANTOS: Petitioner Lozano
and respondent Anda were the respective
presidents of opposing transport groups. An
agreement arose that provided for the merger
of both, and the resulting election in the
combined entity awarded Lozano the
presidency. Anda refused to recognize the same
and continued to collect fees from his former
members. Lozano instituted the present action
seeking damages. Respondent judge dismissed
the suit on the ground that the controversy was
intra-corporate in nature and should be
adjudicated by the SEC. RD: As the combined
organization was not yet registered with the SEC,
it cannot be gainsaid that the dispute is
intra-corporate in nature. The present action
should be resolved by a regular court as it
involves a dispute over the parties’ agreement
to merge.
Ultra vires doctrine, business judgement rule
and the doctrine of apparent authority
MONTELIBANO V. BACOLOD MILLING:
Plaintiffs-appellants are planters adhered to the
respondent’s mill. By virtue of a board
resolution, a concession was granted to the
planters increasing their share in an amended
milling contract. The latter was signed without
the resolution appended thereto. Defendant
contest the concession as it was made without
consideration and that it was an ultra vires act.
RD: The questioned resolution was passed in
good faith by the board, and remains valid and
binding regardless of whether the same would
cause loss to the miller. Accordingly, as long as
they were not acting with bad faith or
negligence,officers may not be held liable and
questions on policy or management are better
left to the discretion of the board.
PHIL REALTY V. LEY: Parties herein agreed to
four contracts for the construction of several
buildings.The latter citing increasing costs of
materials claimed that it could not finish the
project without an escalation clause. While the
board turned down the proposal, such denial
was not sent to respondent contractor; on the
contrary, construction manager Abcede sent a
letter stating that should Ley infuse a certain
amount into the project, the escalation clause
may be agreed upon completion of at least
ninety-five percent of the Tektite building. Ley
continuously sent monthly reports and upon the
completion of the agreed percentage,
requested for the release of the amount
covered in the clause. Petitioner refused on the
ground the letter was not signed by the duly
authorized individuals. RD: 1.The letter was not
a mere letter but a letter-agreement that signed
by Abcede. Over the course of the project, it
was the practice of Ley to approach Abcede or
its vice-president over any concerns;
consequently, applying the doctrine of apparent
authority, Ley was in acting in good faith when
it had assumed that Abcede was clothed with
authority and that the proposed escalation
clause was approved.
ATRIUM V . CA: Hi-Cement issued four
crossed-checks in favor of E.T. Henry and the
same were in turn discounted to Atrium. Atrium
then requested confirmation from Hi-Cement
and its treasure de Leon confirmed the checks.
The checks upon presentment were dishonored,
and Atrium sought the collection of the amount
due. The court a quo absolved Hi-Cement of any
liability as the checks were deemed issued
without authority by its corporate signatories.
RD: The act itself of issuing the checks were
valid corporate acts to secure a loan.
Nevertheless, de Leon was guilty of negligence
when she confirmed the checks as being
negotiable when it was meant for deposit.
Additionally, Atrium may not be deemed a
holder in due course, having been made aware
of the character of the checks.
RURAL BANK OF MILAOR V. OCFEMIA:
Petitioner bank sold foreclosed properties to
respondents. The latter could not register the
same as the bank refused their request for the
board resolution required by the Registrar. The
bank premise its refusal on account that the
sale executed by its bank manager Tena was
without the proper authorization. RD: The bank
is bound by the agreement because of the
following reasons: (a) it failed to specifically
deny the genuineness and due execution of the
deed of sale; (b) it had acquiesced to the
occupation of the premises by the respondents;
(c) as a matter of general practice, or custom, it
had previously allowed Tena to transact in
behalf of the bank and it may not now contest
the same to prejudice innocent third parties,
even if Tena was deemed to have abused her
authority.
ADVANCE PAPER V. ARMA TRADERS: Arma
Traders contest the checks signed for by its
officers on the grounds that the same were not
duly authorized. The checks covered loans
extended by the petitioner. RD: The doctrine of
apparent authority was applied. Despite a lack
of a board resolution, Tan and Uy were clothed
with broad authority, including the increasing of
indebtedness of Arma Trading. Much import
was given to evidence pertaining to the lack of a
board or a shareholders’ meeting over the past
fourteen years and for the same period,
Advance only dealt with the Tan and Uy and no
one else. The laxity by which Arma allowed the
two to abuse their powers may not be used as a
defence to escape its liability from third
persons.
RIOSA V . LA SUERTE: Riosa seeks to annul a
deed of sale covering a parcel of land, claiming
that the same was presented to him as mere
evidence of his indebtedness to Sia Pio,
president of La Suerte and that he had signed
the same without any knowledge that it was a
deed of sale. He further avers that he has
consistently practiced acts of ownership over
the property. La Suerte opposes the claim by
stating it was the lawful owner as shown by title
being registered in its name and that it merely
tolerated the possession of Riosa. RD:. There is
no proof that the loans extended by Pio came
from La Suerte to have been the consideration
for the sale. Absent a board resolution, the
transactions herein partake of the nature of a
loan as opposed to a sale. Moreover, Riosa had
consistently practiced acts of ownership such as
possession and the payment of realty taxes,
belying the claim that he had intended to part
with his property.
Articles of Incorporation
INDUSTRIAL REFRACTORIES V. CA: Respondent
Refractories Corporation, engaged in the selling
of bricks, seeks to have petitioner, an entity
involved in ceramics, change its corporate name,
having been known prior as Synclaire
Manufacturing. The SEC en bank ordered
petitioner to drop “Refractories” from its
corporate name.RD: The SEC has jurisdiction to
make sure corporate names for the protection
of corporations as well as the public.
ZUELLIG FREIGHT V. NLRC: Zeta seeks to avoid
its liability for illegally dismissing San Miguel as
it had ceased its business, as evinced by the
amendment to its Articles of Incorporation,
providing for a change of its name to “Zuellig
Freight”. RD: Petitioner, despite its new name,
was the mere continuation of Zeta’s corporate
being, and still held the obligation to honor all
of Zeta’s obligations, one of which was to
respect San Miguel’s security of tenure. The
dismissal of San Miguel from employment on
the pretext that petitioner, being a different
corporation, had no obligation to accept him as
its employee, was illegal and ineffectual.
GSIS FAMILY BANK V. BPI: Respondent opposed
the use by the petitioner of the words “Family
Bank”. The SEC prohibited the latter from using
the same. RD: The respondent had acquired (a)
prior right and that the disputed words were (b)
identical and confusingly similar.
SAMAHAN NG MANGGAGAWA SA HANJIN V.
BLR: Inter alia, petitioner assails the decision of
the court a quo ordering to drop the words
“Hanjin Shipyard” from its name. RD: While the
right of the petitioner to establish a workers’
association cannot be denied, it has to drop the
disputed words from its name. The continuance
of the same would lead to confusion that all its
members are employed by Hanjin or even
worse, fraud or the evasion of legal duties.
Furthermore, a Department Order has long
established that a labor organization’s change
of name shall not affect its legal personality.
INDIAN CHAMBER OF COMMERCE V. FILIPINO
INDIAN CHAMBER OF COMMERCE: Petitioner
contests the SEC Decision ordering it to change
its name. RD: The SEC correctly applied prior
jurisprudence as respondents had (a) prior right;
and (b) the disputed name was confusingly
similar.
Amendment of By-Laws
FLEISCHER V. NOLASCO: Plaintiff Fleischer
sought to have the shares he had purchased
from a certain Manuel Gonzalez registered in
the books of defendant corporation Botica
Nolasco. By way of special defense, defendant
interposed that it had a preferential right to buy
the same and that the plaintiff had refused its
offer to purchase the shares. Subsequently, the
corporation avers that the registration of the
shares in the defendant’s name would violate
its by-laws. RD: Well-settled is the contention
that a corporation is free to create reasonable
by-laws pursuant to its purpose, provided that
the same are not inconsistent with the
prevailing general law on corporations. In this
instance, such a restriction in the transfer of
shares would contravene the existing law as the
latter puts no restriction on the transfer of
shares aside from its subsequent registration.
Moreover, the plaintiff was not privy to such an
article when he had purchased the disputed
shares. (NOTA BENE: The remedy to compel the
registration of shares is an action for
mandamus.)
IEMELIF V. LAZARO: Iglesia Evangelista
Metodica was established as a corporation sole
by Bishop Zamora. Sometime later, it registered
a set of by-laws that provided for a Supreme
Consistory of Elders who would in turn manage
the affairs of the corporation. In a general
conference, its members approved the
conversion from a corporation sole to a
corporation aggregate. Its corporate papers
remained unaltered for some years however,
and the SEC subsequently answered in a query
posted by the corporation that the corporation
must amend its articles for the move to push
through. This was opposed by a faction of the
church however, raising the issue on whether
the conversion may be accomplished by mere
amendments to its articles, as opposed to a
complete dissolution of the existing corporation.
RD: As there is an absence in the Corporation
Code of provisions for the amendment of a
corporation sole’s articles, pertinent provisions
on non-stock corporations may be applied.
While technically a corporation sole consists of
only one person, the requirement for the
concurrence of two-thirds of its membership
may be employed.
Incidental Powers of a Corporation
MSCI V. NWPC: Asturias Sugar entered into an
agreement with Monomer Trading wherein the
latter would acquire the assets of the former on
the condition that a new entity be created and
the same would be the assignee of such assets.
As a result, respondent corporation Monomer
Sugar was created. After some time, it applied
for wage exemption on the ground that it was a
distressed corporation. Petitioner union
opposed the same. RD: NWPC guidelines
provide that for a corporation to be considered
as distressed, one of the requirement is that
“accumulated losses for two full accounting
periods (including interim periods, if any) have
impaired at least twenty-fiver percent of the
paid-up capital”. As such, the resolution
therefore lies in the correct computation of
respondent’s paid-up capital. MSCI contended
that the amount should only be Five Million,
reflecting the amount of the Twenty Million
worth of subscribed stock actually paid-up. On
the other hand, petitioners aver that loans and
assets extended by both Asturias and Monomer
should be taken into account. The latter
contention was given short shrift by the Court.
For an investment to be treated as part of
paid-up capital, shares must be issued by a
corporation. Moreover, the subsequent
increase in capital stock must comply with
requirements proscribed by the Corporation
Code. Clearly, none of the aforementioned
events occurred. Consequently, the correct
amount to be considered should be Five Million
and the losses incurred by Monomer made it
worthy of an exemption.
FOREST HILLS V. VERTEX SALES: Forest Hills is a
domestic, non-profit stock corporation
operating as a golf and country club organized
by Kings Property and Fil-Estate Property.
Fil-Estate then sold a share of Forest Hills to
R.S.Asuncion, who prior to payment of full
purchase price, transferred the same for the full
amount to respondent Vertex. R.S. Asuncion
advised Fil-Estate of the transaction and Forest
Hills in turn, granted privileges afforded by the
club. Nevertheless, the share remained in the
name of Fil-Estate, leading for an action of
rescission instituted by Vertex. During the
pendency thereof, a stock certificate was issued
in the name of respondent but the latter
refused it. RD: Section (63) of the Corporation
Code provides the following for a valid stock
transfer: (a) the delivery of the stock certificate;
(b) the endorsement of the owner or any
authorized person; (c) to be valid against third
parties, the recording of the transaction in the
corporate books. As the stock certificate was
not issued, the transfer was not valid and
rescission was a proper remedy. Moreover,
Forest Hills, not being privy to the sale, is not a
proper party to appeal the decision as the
transaction involved Fil-Estate and Vertex.
Nevertheless, the Court found it proper for
Forest Hills to retain the membership fees paid
for by Vertex as the latter enjoyed the privileges
the club had to offer.
UNIVERSITY OF MINDANAO V. BSP: Petitioner’s
Vice President for Finance Petalcorin executed
several mortgages upon its properties to serve
as security for the loan arrangements benefiting
banks owned by its Chairman Torres. The
contract was supported by a Secretary’s
Certificate alongside minutes of a meeting, both
being later found to be simulated. Eventually,
Torres’ financial institutions were unable to
meet its obligation and were liquidated, leading
to respondent’s attempt to foreclose the
mortgage. University of Mindanao denied that
Petalcorin had authority to enter into such an
arrangement. RD: While the Corporation Code
grants incidental powers to a corporation, its
actions must nevertheless coincide with the
purpose stated on its charter. As an educational
institution, the University had no power to
enter into arrangements that would secure the
liabilities of third persons. Moreover, there
exists a want of a resolution authorizing
Petalcorin to contract in behalf of the
University.
Terms and qualifications of Directors;
Hold-Over Doctrine
SENERES V. COMELEC: Respondent Robles was
elected to the presidency of BUHAY, a party-list
entity on 1999. For the 2007 elections, Robles
submitted a list of nominees. This was opposed
however by petitioner Seneres who in turn,
alleged that he was the real president as Robles
had vacated the position in 2004. RD: The
holdover principle applies. Despite the expiry of
Robles’ term, he is allowed to continue
discharging the functions of his office until his
successor is elected or appointed.
SOUTH COTABATO V. SANTO TOMAS:
Petitioner network was charged with violating
labor standards laws. Upon reaching the Court
of Appeals, the case was dismissed on the
ground that the petitioner corporation had not
appended a board resolution authorizing its
President Benzonan to sign the verification as
well as the certificate against forum shopping.
RD: It was an error to dismiss the appeal as
there was substantial compliance with the
procedural requirements. As President as well
as co-respondent in the case at bar, Benzonan
was qualified to sign the procedural necessities
in behalf of South Cotabato. While as a general
rule, the best practice would be to append
resolution authorizing an individual to sign in
behalf of a corporation, in a slew of
jurisprudence and on a case to case basis, the
Court has deemed it proper to relax the
requirements if substantial compliance is
shown.
Meetings
LOPEZ REALTY V. TANJANGCO: Petitioner realty
and respondents were co-owners in equal share
of a building, the later being successors of Jose
Tanjangco. The respondents then offered to
purchase the realty’s share and the topic was
discussed in several meetings conducted by its
board. Eventually, it was resolved that one of
their shareholders, Asuncion Lopez, be given
priority to equal the offer of the respondents.
As Asuncion did not exercise her option, the
remaining directors, while Asuncion was abroad
and without notice to the same, resolved in a
meting to conduct the sale in favor of the
Tanjangcos. Aggrieved, LRI and Asuncion sought
to annul the sale. It is further alleged by the
respondents that another meeting was
subsequently held supposedly ratifying the sale.
RD: While the Corporation Code provides
various means by which directors conduct their
meetings, the same must be attended by
notices in order to afford persons ample
opportunity to attend. Otherwise, the meeting
is deemed illegal and the act arising therefrom
does not bind the corporation. In addition,
infirmities attend the subsequent meeting
allegedly ratifying the sale, such as
non-directors signing the minutes; accordingly,
the sale could not have been approved by the
board.
BERNAS V. CINCO: Alarmed by the supposed
misuse of funds in the Makati Sports Club,
respondents Cinco et al. sought the removal of
petitioners Bernas et al., the latter being
officers and directors of the corporation. In a
special stockholders’ meeting called by the
oversight group, Cinco and his group were
eventually elected as directors and officers.
Bernas contested the validity of the meeting
arguing that it may only be called by the
corporate secretary. Another meeting was held
wherein the members of the club ratified the
actions arising from the first meeting. RD: The
first meeting was improperly called as the by
-laws of the club, in relation to the Corporation
Code, only allows for the President or the Board
to call a special meeting. Nowhere in its
provisions does a grant of authority to the
oversight committee exist. As the act expelling
the Bernas group was void, it could not have
been ratified as well in the second meeting.

Doctrine of Corporate Opportunity:
GOKONGWEI V. SEC: Petitioner questions the
amendment of by-laws by the board that
involved, inter alia, that disqualified persons
who had competing interests with San Miguel
from election or nomination to the board. RD:
San Miguel was well within its rights to impose
reasonable requirements for an individual’s
election to the board; moreover, no vested right
exists for a shareholder to be elected-there
exists an implied acceptance for a shareholder
to submit to the will of the majority. Accordingly,
as director of the corporation, one would serve
as a fiduciary of the company and to
subsequently partake in endeavors that may be
prejudicial to the entity would be contradictory
to such a purpose.
Stock Certificate
PONCE V. ALSONS CEMENT: Gaid indorsed his
shares to petitioner Ponce. Respondent
corporation refused to issue stock certificates in
his name, alleging that the transaction was not
recorded in its book. RD: The proper procedure
that the petitioner should have undertaken was
to have the corporation first record the transfer
in its books and then demand the certificates.
Absent express instructions thereon, an
indorsement does not afford an automatic right
to register the same, and subsequently, to have
certificates issued therefrom.
F.S VELASCO V. MADRID: Respondent Madrid
called a special meeting on the ground that as
heir of his late wife, he had inherited the latter’s
share in the petitioner-corporation. He then
commenced a reorganization of the corporation
that resulted in him and his cohorts being
officers and members of the board. At the same
time, petitioners Velasco et al. also conducted
elections that resulted in turn, in them being
elected as officers of the corporation.
Petitioners sought to have the actions of Madrid
nullified. RD: For a transfer to be binding against
a corporation, the same should be recorded in
its books. As such,the inheritance by Madrid of
his wife’s shares did not vest in him the rights of
a majority shareholder as the transfer was not
recorded in its books. Consequently, the
meeting called by the respondents and the
effects arising therefrom are null and void.
INSIGNE V. ABRA VALLEY COLLEGES:
Respondent corporation refused the inspection
of books on the ground that the petitioner had
refused to surrender their certificates.
Apparently, the certificates due the petitioners
remained in the names of their predecessors in
interest. RD: A stock certificate is mere prima
facie proof of ownership. Accordingly, other
means may be adduced to prove the same. In
this instance, petitioners presented receipts,
minutes, the general information sheet,and a
secretary’s certificate to prove their ownership.
Consequently, petitioners have the right to
inspect the books.
FERRO CHEMICALS V. GARCIA: Ferro Chemicals
sought to purchase shares of Chemical
Industries. An agreement was reached, which
included a repurchase clause. Antonio Garcia,
president of Chemical Industries later sought to
exercise the same, but having found the amount
tendered insufficient, Ferro assigned its rights to
Chemphil. In the meantime, a consortium of
banks agreed on a compromise agreement to
cover Garcia’s liabilities. As the latter did not
comply, Garcia’s holdings were attached and
the banks eventually won the shares of Garcia
in an auction. But prior to having the sale
registered, Chemphil opposing the same, citing
ownership on the basis of Ferro’s assignment.
For his part, Garcia also instituted cases for
specific performance to exercise his repurchase
right.
Subsequently, the banks won to have the sale
registered and eventually assigned their rights
over the shares to Gonzales. Chemphil
proceeded against Ferro who in turn, ceded
rights over its property to the former in order to
satisfy its obligation. Aggrieved, Ferro filed suit
against Garcia, Gonzales and Chemical
Industries for damages, claiming that a
conspiracy was afoot among the defendants,
holding out the shares to be free from
encumbrances in order to induce Ferro to
purchase the same when the contrary was true.
RD: 1. The consistent efforts of Garcia to
repurchase the shares belie the contention
Ferro that fraud was involved. Considering it
was Ferro who proposed the purchased and the
amounts involved, it would be hard to imagine
where the corporation would not conduct due
diligence in executing the agreement- the liens
on such shares were never hidden. Accordingly,
the losses suffered by Ferro can simply be
attributed to a business judgement that did not
work out to its favor. 2. Navarro, as corporate
secretary, cannot be held liabile for a tort as he
was not privy to the contract. In additions, liens
and encumbrances are not required to be kept
on the stock and transfer book; only absolute
transfers are.
TENG V. SEC: Respondent Ting purchased TCL
shares from several individuals. He then
requested petitioner-corporate secretary to
record the same and issue new certificates in
his name. TCL and Teng refused on the ground
that the old certificates must be
surrendered.RD: Delivery is the operative fact
that transfers ownership, not the surrender of
the certificates. The corporation may not
demand the same as a requirement prior
registration.
Rights and Obligations of Shareholders
PUNO V. PUNO ENTERPRISES: The petitioner
herein was an alleged heir of Carlos Puno, an
incorporator of respondent corporation.
Accordingly, upon the death of Carlos, the
former sought to inspect the corporate books in
action for specific performance. The case was
dismissed on the ground that the petitioner was
not a registered shareholder. RD: Heirs are
mere equitable holders upon the death of a
shareholder. Until a settlement of the
decedent’s estate is reached, it is the executor
or administrator who exercises the deceased
shareholder’s rights.
YUJUICO V QUIAMBAO: Petitioner Yujuico,
upon his election as President of STRADEC,
sought to have the corporate books and records
inspected. However, it appears that respondent
and his cohorts- who were former officers of
the corporation- have absconded with the same.
The former then instituted a criminal action and
while the first level court found probable cause
to issue arrest warrants against the respondent,
the Regional Trial Court dismissed the case,
citing a want of demand (aside from a letter),
that one of the officers had already turned over
a few files and the lack of evidence supporting
the contention that the books were in the
possession of the respondents. In addition, the
lower court opined that the stock and transfer
book sought by petitioners was not within the
ambit of the “corporate records” provided for in
the Corporation Code. RD: 1. The stock and
transfer book is included in the inspection right
of a shareholder. 2. The violation of a
shareholder’s right to inspect should be
directed against officers of a corporation. As the
respondents herein were not, the present suit
cannot be maintained. Another recourse, one
seeking to enforce the proprietary rights of
STRADCOR over such papers, should be
pursued.
TERELAY INVESTMENT V. YULO: Respondent
sought to inspect the corporate books and
petitioner corporation refused. RD: 1.
Shareholders, as a matter of right should be
afforded the right to inspect the books. Only in
certain instances such as the revelation of
corporate secrets or to secure prospects or to
discover technical defects to commence strike
suits or blackmail the corporation may it refuse.
2. The status of Cecilia as a shareholder was not
objected to by Terelay, having admitted that the
former was registered. In addition, the fact of
whether she was the donee of the shares was
a proper subject of the lower court acting as a
corporate court, as opposed to one that settles
the estate of Cecilia’s father.
PHILIPPINE ASSOCIATED SMELTING V. LIM:
Petitioner corporatin was granted injunctive
relief against the right of respondent -
shareholders to inspect the corporate books. RD:
Injunctive relief is afforded when there (a) is an
actual right; (b) an invasion of such a right; and
(c) urgency and necessity to prevent serious
damage or irreparable injury. Clearly, a
corporation has no right to enjoin a shareholder
from inspecting its books.
CHUA V. PEOPLE: Joselyn Chua, a shareholder
of Chua Te Corporation, sought to inspect the
books and records of the corporation. Despite
her written demands, petitioners herein-
officers and the custodian of the records-
refused. They raised the defense that the
corporation had already ceased its affairs and
the right invoked by Joselyn did not exits.
However, petitioners were convicted . RD: The
cessation of a corporation does not
automatically deprive the shareholder of his or
her right of inspection. Moreover, as the OSG
pointed out, the Corporation Code provides for
a period of three years in which a corporation
settles its affairs, including an inspection of its
books by a shareholder.
the greater number as a basis for the quorum
should be used.
GUY V. GUY: Goodland Company Incorporated
was a family corporation where petitioner who
served as director and shareholder, and where
respondents were shareholders as well. The
dispute arose when petitioner Simny Guy
alleged that he received notice for a special
meeting that resulted in the election of
respondents as officers fifteen days late. In
addition, petitioner contests the authority of
Gilbert Guy who served as Vice-President to call
such meeting. Respondents aver that the notice
had been sent in accordance with its by-laws
that provided for at least five days and that the
infirmity if any, had been corrected by a
subsequent general meeting. RD: 1. The
Corporation Code does not require actual
receipt but rather mandates a time period by
which a notice is sent prior a special meeting. 2.
The by-laws of Goodland allow the
Vice-President to exercise all the powers of the
President in case the latter’s inability or absence;
accordingly, Gilbert was well within his rights to
call for a special meeting. 3. Grace Cheu was not
a shareholder as her name was not recorded in
the stock and transfer book.

Derivative Suit
Meetings

HI-YIELD REALTY V. CA: Respondent Roberto

LANUZA V. CA: A dispute had arisen on
Torres as minority shareholder and in behalf of
whether a meeting called for the purpose of
Honorio Torres and Sons Incorporated
electing directors of the Philippine Merchant
instituted the present suit for annulment of
Marine School had the proper quorum. It
mortgage and foreclosure in the principal place
appears that while the articles of incorporation
of business of Torres Incorporated, Makati.
listed a greater number of outstanding capital
Torres was also contesting the actions of its
stock, the stock and transfer book had merely
majority shareholder Leonora that led to the
recorded thirty-three common shares. RD:
mortgages and foreclosure of properties in
The articles of incorporation serve as the
Marikina and Quezon City. Petitioner insists that
charter by which a corporation’s relationship
the action should have been made as it was a
with the State, its shareholders, and other
real action and the venue was improperly laid.
persons is defined. In contrast with a stock and
RD: The present action is a derivative suit and
transfer book which merely records transactions
Roberto had complied with the requirements
involving its shares and may be impeached by
thereof, namely: (a) the party bringing suit is a
other evidence, the articles are binding on the
shareholder; (b) the same has exhausted all
corporation and its shareholders. Consequently,
remedies with the corporation; and (c) the
cause of action refers to harm or injury that
may befall or has befallen to the corporation.
Accordingly, it was not proper to dismiss the
case as the venue was correct.
YU V. YUKAYGUAN: Both parties herein are
shareholders of Wincheter Incorporated.
Petitioner and incorporator Anthony Yu was the
older half-brother of respondent Joseph.
Respondents initiated the present action as a
derivative suit as well as seeking to inspect its
corporate books and records. They also allege
that petitioners have mismanaged the
corporation and that shares that were in the
name of Anthony were paid with Joseph’s
money, making the former a trustee. RD:
For a derivative suit to be appreciated, the
requirements thereto must be complied with;
respondent had not exhausted all remedies
available by directing his concerns with the
board in a meeting, nor did he allege that no
appraisal rights were available.
FILIPINAS PORT SERVICES V.GO: Petitioner Cruz
was the former president of Filport and assailed
the creation of an executive committee and
new positions for respondents and in a letter,
sought the return of salaries granted thereto.
After the apparent inaction of the board, he
then instituted the present action for damages
in behalf of Filport, arising from the
mismanagement of the respondents of the
corporation. RD: 1. The present action is of a
derivative suit and Cruz had substantially
complied with the requirements imposed by law.
While as a general rule, the shareholder must
exhaust all remedies available to the
corporation, exceptions arise such as in this
instance, when demands upon the board would
be a nullity as it remained under the complete
control of the defendants. 2. Nevertheless, the
suit should not prosper. The disputed
committee, despite not being in the by-laws,
was not illegal and well within the powers of the
board to create. In addition, the salaries
complained were reasonable in relation to the
responsibilities involved and were not even paid
for any injury to the corporation to be
appreciated.
CHUA V. CA: Respondent Hao, treasurer of
Siena Realty, insitituted the complaint for
falsification alleging that petitioner Chua and his
wife, falsified minutes of a meeting and made it
appear she was present thereto. The complaint
against the wife was dismissed while petitioenr
was arraigned and trial ensued. RD: While the
civil aspect of the criminal suit is generally
deemed instituted thereto, the corporation
must be impleaded for the same to be
appreciated as a derivative suit.
CUA V. TAN: Philippine Racing Club was a
corporation established for the purpose of
conducting a horse racing business. As it
intended to develop one of its properties, it
decided to acquire another company, JTH, to
accomplish such a task. The resolution was
subsequently approved by the majority in
shareholders’ meetings. Respondent Dulay et al.
assail the actions of petitioners in executing the
plan, alleging undue haste and a lack of
transparency prejudicial to the interests of PRCI.
They also allege that the majority directors
were not officially nominated as board
members, rendering the actions they have
undertaken as void. In the meantime, another
resolution was approved by the board
proposing a property for shares exchange.An
injunction was obtained preventing the
approval of the intended plan. RD: The present
action partakes of a nature of a derivative suit,
primarily for the (a) the approval of the first
plan to acquire JTH; and (b) the approval of the
property for shares exchange plan. Accordingly,
the first dispute had been rendered moot by the
approval of the majority while the latter
controversy should be dismissed as it did not
comply with the procedural requirements
imposed upon derivative suits-it did not allege
the non-availability of appraisal rights. Lastly,
the claim that respondents were prevented
from inspecting books should be denied as they
were given opportunities to inspect statements
regarding the proposed plan.
ANG V. SPOUSES ANG: Sunrise Marketing is
family owned corporation whose management
rests with respondents. Nancy Ang, sister of the
parties herein, extended a loan to both parties
settle the obligations of Sunrise as well as the
purchase of various properties. The obligation
was eventually settled by Juanito employing
mortgages over various properties owned by
petitioner Juanito, respondent Roberto, and
Sunrise. Juanito then instituted the present
action alleging mismanagement by Roberto and
his refusal to settle his part of the obligation. RD:
The action is not in nature of a derivative suit as
there is no showing that the same accrues to
the corporation. The loan extended was a
personal obligation to the parties herein, and
the corporation not privy to it. The mortgage
over Sunrise’s properties is of no effect as
Juanito, despite being a shareholder, had no
right to encumber the land- only the board may
do the same.
VILLAMOR JR. V. UMALE: PPC by virtue of its
board waived its leasing rights in favor of
petitioner Attorney Villamor. Balmores (later
substituted by respondent Umale) filed an
individual suit contesting the same. RD: The
cause of action pursued by Balmores accrues to
the corporation and therefore, should have
been instituted in a derivative suit. Accordingly,
he had not complied with the requisites thereof
by not alleging the lack of appraisal rights
available to him.
CHING V. SUBIC BAY: Petitioners Ching et al.are
shareholders of Subic Bay Golf Club contesting
the amendment of its articles by the board,
depriving its shareholders of proprietary rights.
They also allege mismanagement involving
funds and fraud in not disclosing the true state
of transactions involving the club. RD: The
present action is a derivative suit as the cause of
action accrues to the corporation. Accordingly,
it must comply with legal requisites for the
same to be recognized. Ching et al. had not
exhausted prior remedies available to the
corporation.
FLORETE V. FLORETE: Two factions of a family
owned corporation, PBS, are involved in a
dispute concerning the ownership of its shares.
Petitioners contest the subsequent increase and
transfer of stock owned by respondents. RD:
The nature of the complaint lies in being a
derivative suit. Petitioners allege fraud in the
actions of the board concerning the movement
of shares towards Rogelio’s group. Accordingly,
the harm done was not unique to the Marcelino
faction but to the entire corporation itself. As an
indispensable party, the corporation should
have been impleaded.
Corporate Acquisition
MINDANAO SAVINGS AND LOAN V. WILLIKOM:
MSLAI was borne out of a unregistered merger
of two entities engaged in savings and loans.
This endeavor did not succeed however,
resulting in the liquidation of the same. Prior to
its closure however, a collection suit was
instituted by respondent Uy against FISLAI, one
of the predecessors of MSLAI, and obtained a
favorable judgement,resulting in the foreclosure
of several properties. In the ensuing sale,
respondent Willikom was the highest bidder
and received title thereto. MSLAI questions
the sale on the ground that it now became the
owner of the disputed property after the
merger. RD: 1. For a merger to be valid and
effective, it must be registered with the SEC and
the latter shall accordingly issue a certificate
accrediting the same. Consequently, the assets
and liabilities of each entity remained distinct
and separate. MSLAI had no right to question
the sale of FISLAI’s properties. 2. The principle
of novation does not apply either, as the
express consent of Uy was not obtained. The
assumption of FISLAI’s liabilities by MSLAI did
not result in the substitution of debtors that
would exempt such prop erties from execution.
BPI V. BPI EMPLOYEES UNION: Petitioner bank
invokes its merger with Far East Bank to exempt
absorbed employees from the coverage of a
union shop clause existing in the CBA with it
present employees. RD: (2010): Employees are
neither assets nor liabiities that are to be
treated like chattel during a merger. Both
parties- employer and employees- have a
concomitant right to continue their relationship
of employment with one another; as such, the
provision concerning the union shop would now
apply to those who choose to continue with BPI.
(2011) While the application of the union shop
clause remained, the automatic assumption
theory is now in effect- BPI becomes the
successor of employer of the employees, having
the right to terminate the same at a later date.
BANK OF COMMERCE V. RADIO PHILIPPINES
NETWORK: Traders Royal Bank and petitioner
Bank agreed to a Purchase and Assumption
agreement wherein the later would purchase
the former’s assets alongside its liabilities. The
BSP approved the same premised upon the
condition that an escrow fund be set up to
address any contingent claims. An adverse
judgment was set against Traders in favor of
respondents who for their part, proceeded
against Bank of Commerce as opposed to the
escrow fund, on the theory that a merger had
occurred between the two entities. RD: 1. No
merger had occurred as the requirements set
forth in the Corporation had not been complied
with; neither does a “de facto” merger apply in
this instance as there was no substantial
transfer of assets exchanged for equity. What
merely occurred was a sale of assets couple
with an assumption of liabilities. The two
entities had clearly intended to continue as
separate corporations.
Y-I LEISURE V. YU: Respodent Yu sought to
recover sums he paid to Mount Arayat for
shares in a golf and country club that was
non-existent. Yu obtained a favorable judgment,
later modifed by the court a quo to include
petitioners. It appears Mount Arayat had sold all
its assets to petitioner. RD: As a general rule,
the transfer of all an enterprise’s assets shall
not render the transferee liable unless (cf. Nell
Rule): (a) an agreement, express or implied, to
assume all debts exists; (b) the transaction
equates to a consolidation or merger; (c) the
purchasing corporation serves as the
continuation of the other (business enterprise
transfer); and (d) the transaction was attended
by fraud, for the purpose of evading liabilities.
In this instance, as Mount Arayat had
transferred all of its assets to Y-I, the latter was
deemed to be a continuation of a former, and
therefore liable for Yu’s claim. The remedy of Y-I
lies in the “free and harmless”clause enshrined
in the memorandum and seek recourse against
Arayat’s president.
PHILIPPINE GEOTHERMAL EMPLOYEES UNION
V. UNOCAL: Petitioner union sought separation
benefits as it alleges the merger of Unocal
California with Chevron et al. resulted in the
closure of Unocal Philippines. and the implied
dismissal of the employees. Respondent
opposes the same averring that it was not a
party to the merger and it still continues to
subsist. RD: Whether the Unocal Philippines was
a branch or subsidiary is of no import to the
employees involved herein- if it was a branch, a
merger does not serve as a termination of
employment of the absorbed employees; if it
was a subsidiary, it has a distinct personality
from it parent company and the merger has no
effect on their employment. Moreover, a
merger is not an instance wherein a claim for
separation pay may be appreciated.
Religious Corporations
IFI V. TAEZA: Plaintiff was the owner of a lot
that was further subdivided into smaller parcels.
Its Supreme Bishop Ga, entered into several
transactions alienating the properties, one of
which was a sale conducted in favor of Bernardo
Taeza, the respondents’s predecessor in interest.
Petitioner-religious corporation assails the sales
of its lands as done without authority. RD:
While the Corporation Code allows a
corporation acquire or alienate property, the
same may be tempered rules or regulation of
the church. In this instance, pursuant to the
canons of the church, Ga’s power required the
concurrence of other individuals- the layman’s
council had long voiced its objection over Ga’s
actions. Consequently, the alienation occuring
without authority, it must be stated that the
contract of sale was unenforceable. (Cf.
Constructive trust).
Dissolution
VIGILIA V. PHILIPPINE COLLEGE OF
CRIMINOLOGY: Petitioners herein are dismissed
employees of MBMSI, a corporation engaged in
the performance of janitorial services. Attorney
Seril, who served as President and Manager of
the corporation, also served as Vice-President of
respondent college. As MBMSI’s certificate of
incorporation was revoked, the college
terminated the relationship with the former,
leading to the dismissal of the employees.
Petitioners allege that the MBMSI was a mere
adjunct of the college and that they were
regular employees thereof; accordingly, the
institution should be held liable for their claims.
Respondent college presented several
quitclaims and waivers to counter the argument.
RD: 1. The quitclaims were valid in form and in
substance, having been knowingly and
voluntarily entered into as well as having been
notarized. The petitioners’ claims of forgery as
well as any other irregularity attending the
same are merely self-serving. 2. The three year
period refers to the conveyance of the
corporation to its trustees; accordingly, if a
complete liquidation may not be completed
within such a period, it may continue after. The
quitclaims and waivers executed by the
petitioner fall within such purview.
AGUIRRE II V. FQB: Petitioner instituted a suit
questioning the validity of a meeting held by
stockholders and sought to inspect FQB’s
corporate books. Moreover, members of the
disputed board tried to take possession of the
corporate farm which was in the hands of
co-petitioner Fidel. In the meantime, the SEC
had revoked the registration of FQB for not
complying with reportorial requirements
Respondent now assail the capacity of
petitioners to bring suit. RD: An intra-corporate
dispute remains even after the dissolution of a
corporation.
ALABANG DEVELOPMENT V. ALABANG HILLS
VILLAGE: Respondent homeowners association
constructed a multi-purpose hall and swimming
pool without petitioner developer’s consent.
The suit filed by the petitioner was opposed by
the respondent on the ground that its corporate
existence had ceased as the SEC had revoked
the same, thus depriving the former its capacity
to sue. RD: The Corporation Code provides for a
period of three years from the termination of its
existence in order to initiate or defend itself
from suits- ie. to convey its affairs to any trustee
with the period. More than three years had
lapsed before the petitioner initiated the
present action. Additionally, the litany of cases
invoked by petitioner does not apply as their
cases were pending prior to their dissolution.
Foreign Corporations
CARGILL V. INTRA-STRATA: Cargill sought to
import molasses from Northern Mindanao
Corporation, with the respondent issuing the
performance bond. As NMC did not meet its
obligation, Cargill sought recompense with
respondent after a subsequent compromise
agreement did not materialize. RD: To
constitute doing business, the activity must
involve profit-taking. The mere importation of
products or goods is not within such a definition.
Moreover, Cargill never had an office nor an
agent in the country to pursue its interests,
aside from an independent contractor it had
hired to solicit purchases. Accordingly, Cargill
had the required standing to file suit.
ABOITIZ V. INSURANCE COMPANY OF NORTH
AMERICA: MSAS Cargo entered into an “all-risk”
policy with ICNA UK. It then shipped its cargo
with Aboitiz, subsequently suffering from water
damage. ICNA settled the claim, and through
subrogation, sought recompense with Aboitiz.
RD: As a general rule, foreign corporations
without a license may not institute suits in
Philippines court. An exception arises however
in this instance when a foreign insurance
company seeks relief arising from an isolated
transaction. In addition, the entity that brought
forth the suit was its domestic agent.