Bus Org 2 CORPORATION LAW

CORPORATION LAW
CASE DOCTRINES
JONATHAN D. PAGADUAN
COR JESU COLLEGE OF LAW
CORPORATION LAW
PAGE CASE TITLE
PART I. CONCEPTS OF CORPORATION
1 Tayag vs. Benguet Consolidated, Inc.

3 Ang Pue & Co. vs. Sec. of Commerce & Industry
5 International Express Travel & Tour Services, Inc. vs. Court of Appeals
7 Torres vs. Court of Appeals
9 Tan Boon Bee & Co., Inc. vs. Jarencio
11 Philippine Stock Exchange, Inc. vs. Court of Appeals
13 Reynoso, IV vs. Court of Appeals
15 San Juan Structural and Steel Fabricators, Inc. vs. Court of Apeals
17 Pioneer Insurance vs. Court of Appeals
18 Kilosbayan, Inc. vs. Guingona, Jr.
PART II. NATURE AND ATTRIBUTES OF A CORPORATION
21 Smith Bell & Co., vs. Natividad

23 Bataan Shipyard & Engineering Co. vs. PCGG
24 PNB vs. Court of Appeals
26 Philippine Commercial International Bank vs. Court of Appeals
29 Sia vs. Court of Appeals
31 Mambulao Lumber Co. vs. Philippine National Bank
33 Solid Homes, Inc. vs. Court of Appeals
35 Asset Privatization Trust vs. Court of Appeals
38 ABS-CBN Broadcasting Corp. vs. Court of Appeals
40 Cometa vs. Court of Appeals
42 Roman Catholic Apostolic Administrator of Davao, Inc. vs. The
45 Register of Deeds of Rizal vs. Ung Sui Si Temple, 97 Phil 58
47 People vs. Quasha
49 Tatad vs. Garcia, Jr.
51 PLDT vs. National Telecommunications Commission
55 Filipinas Compania de Seguros vs. Christern, Huenefeld & Co., Inc.
57 Palting vs. San Jose Petroleum Inc.
PART III. SEPARATE JURIDICAL PERSONALITY AND DOCTRINE OF

PIERCING VEIL OF CORPORATE FICTION
58 Lim vs. Court of Appeals

62 San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals
64 DBP vs. National Labor Relations Commission
66 Francisco, et.al. vs. Mejia
68 Remo, Jr. vs. Intermediate Appellate Court
71 Asionics Philippines, Inc. vs. National Labor Relations Commission
75 Manila Hotel Corp. vs. National Labor Relations Commission
77 Francisco vs. Mejia
80 Laguio vs. National Labor Relations Commission
82 ARB Constructions Co., Inc. vs. Court of Appeals
84 Good Earth Emporium, Inc. vs. Court of Appeals
86 Gochan vs. Young
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PART IV. PIERCING THE VEIL OF CORPORATION FICTION
89 Traders Royal Bank vs. Court of Appeals

93 Ramoso vs. Court of Appeals
95 Umali vs. Court of Appeals
97 Indophil Textile Mill Workers Union – PTGWO vs. Calica
100 Manila Hotel Corporation vs. NLRC
103 Reynoso IV vs. Court of Appeals
105 PNB vs. Ritratto Group, Inc., et.al
PART V. CLASSIFICATION OF CORPORATIONS
108 National Coal Co. vs. Collector of Internal Revenue

110 Boy Scouts of the Philippines vs. NLRC
112 Bliss Dev’t. Corp. Employees Union vs. Calleja
114 Benguet Electric Cooperative, Inc. vs. NLRC
116 Director of Land vs. IAC, 146 SCRA 509
PART VI. CORPORATE CONTRACT LAW
118 Bayla vs. Silang Traffic Co., Inc.

120 Caram, Jr. vs. CA
121 Arnold Hall vs. Piccio
125 Lozano vs. Delos Santos
126 People vs. Garcia
PART VII. ARTICLES OF INCORPORATION
128 Gov’t of the Philippin Islands vs. Manila Railroad Co.

130 Red Line Trans vs. Rural Transit
132 Uy Siuliong vs. Director of Commerce and Industry
135 Alhambra Cigar vs. Securities and Exchange Commission
136 Clavecilla Radio System vs. Antillon
138 Sy vs. Tyson Enterprises, Inc.
PART VIII. DIRECTORS, TRUSTEES AND OFFICERS
140 Gamboa vs. Victoriano

142 Angeles vs. Santos
144 The Board of Liquidators vs. Heirs of Maximo M. Kalaw
147 Islamic Directorate of the Philippines vs. Court of Appeals
152 Gokongwei, Jr. vs. Securities and Exchange Commission
155 Lee vs. Court of Appeals
158 Premium Marble Resources vs. Court of Appeals
160 Grace Christian High School vs. Court of Appeals
162 Roxas vs. Dela Rosa
164 Lopez vs. Ericta
166 Western Institute of Technology, Inc. vs. Salas
168 Gurrea vs. Lezama
170 Dy vs. National Labor Relations Commission
172 De Rossi vs. National Labor Relations Commission
174 People’s Aircargo vs. Court of Appeals
177 Torres, Jr. vs. Court of Appeals
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179 Esguerra vs. Court of Appeals

183 Pabon vs. National Labor Relations Commission
185 Pabalan vs. National Labor Relations Commission
187 Uichico vs. National Labor Relations Commission
PART IX. CORPORATE POWERS, AUTHORITY AND ACTIVITIES
189 Land Bank of the Philippines vs. COA

193 Atrium Management Corporation vs. Court of Appeals
195 ABS-CBN Broadcasting Corporation vs. Court of Appeals
197 Yao Ka Sin Trading vs. Court of Appeals
199 Soler vs. Court of Appeals
201 Harden vs. Benguet Consolidated Mining, Co.
203 Luneta Motor Co., vs. A.D. Santos, Inc.
205 Tam Wing Tak vs. Makasiar
207 Central Textile Mills, Inc. vs. NWPC
212 De La Rama vs. Ma-ao Sugar Central Co.
215 Nielson & Co. vs. Lepanto Consolidated Mining, Co.
218 NTC vs. Court of Appeals
220 Republic Planters Bank vs. Agana
226 China Banking Corp. vs. Court of Appeals
230 Lopez Realty vs. Fontecha
232 JM Tuason & Co., vs. Bolanos
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CORPORATION LAW
PART I
CONCEPTS OF CORPORATION
1 Tayag vs. Benguet Consolidated, Inc.
3 Ang Pue & Co. vs. Sec. of Commerce & Industry
7 Torres vs. Court of Appeals
9 Tan Boon Bee & Co., Inc. vs. Jarencio
15 San Juan Structural and Steel Fabricators, Inc. vs. Court of Apeals
17 Pioneer Insurance vs. Court of Appeals
18 Kilosbayan, Inc. vs. Guingona, Jr.
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CORPORATION LAW
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased.

RENATO D. TAYAG vs. BENGUET CONSOLIDATED, INC.
G.R. No. L-23145. November 29, 1968, Fernando, J.
The situs of shares of stock would be the place of domicile of the

corporation to which they pertain to.
Facts:
In March 1960, Idonah Perkins died in New York. She left behind
properties here and abroad. One property she left behind were two stock
certificates covering 33,002 shares of stocks of the Benguet Consolidated, Inc
(BCI). Said stock certificates were in the possession of the Country Trust
Company of New York (CTC-NY). CTC-NY was the domiciliary
administrator of the estate of Perkins (obviously in the USA). Meanwhile, in
1963, Renato Tayag was appointed as the ancillary administrator (of the
properties of Perkins she left behind in the Philippines).
A dispute arose between CTC-NY and Tayag as to who between them

is entitled to possess the stock certificates. A case ensued and eventually, the
trial court ordered CTC-NY to turn over the stock certificates to Tayag. CTC-
NY refused. Tayag then filed with the court a petition to have said stock
certificates be declared lost and to compel BCI to issue new stock certificates
in replacement thereof. The trial court granted Tayag’s petition.
BCI assailed said order as it averred that it cannot possibly issue new
stock certificates because the two stock certificates declared lost are not
actually lost; that the trial court as well Tayag acknowledged that the stock
certificates exists and that they are with CTC-NY; that according to BCI’s by
laws, it can only issue new stock certificates, in lieu of lost, stolen, or
destroyed certificates of stocks, only after court of law has issued a final and
executory order as to who really owns a certificate of stock.
Issue:
Whether or not the arguments of Benguet Consolidated, Inc. are correct.
Held:
No. Benguet Consolidated is a corporation who owes its existence to

Philippine laws. It has been given rights and privileges under the law.
Corollary, it also has obligations under the law and one of those is to follow
valid legal court orders. It is not immune from judicial control because it is
domiciled here in the Philippines. BCI is a Philippine corporation owing full
allegiance and subject to the unrestricted jurisdiction of local courts. Its shares
of stock cannot therefore be considered in any wise as immune from lawful
court orders. Further, to allow BCI’s opposition is to render the court order
against CTC-NY a mere scrap of paper. It will leave Tayag without any
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remedy simply because CTC-NY, a foreign entity refuses to comply with a

valid court order. The final recourse then is for our local courts to create a
legal fiction such that the stock certificates in issue be declared lost even
though in reality they exist in the hands of CTC-NY. This is valid. As held
time and again, fictions which the law may rely upon in the pursuit of
legitimate ends have played an important part in its development.
Further still, the argument invoked by BCI that it can only issue new
stock certificates in accordance with its bylaws is misplaced. It is worth noting
that CTC-NY did not appeal the order of the court – it simply refused to turn
over the stock certificates hence ownership can be said to have been settled in
favor of estate of Perkins here. Also, assuming that there really is a conflict
between BCI’s bylaws and the court order, what should prevail is the lawful
court order. It would be highly irregular if court orders would yield to the
bylaws of a corporation. Again, a corporation is not immune from judicial
orders.
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ANG PUE & COMPANY, ET AL.

vs. SECRETARY OF COMMERCE AND INDUSTRY
G.R. No. L-17295 July 30, 1962, Dizon, J.
To organize a corporation that could claim a juridical personality of

its own and transact business as such, is not a matter of absolute right but a
privilege which may be enjoyed only under such terms as the State may
deem necessary to impose.
Facts:
Ang Pue and Tan Siong organized a partnership for a term of 5 years.
Their agreement provides that they can extend the partnership for another 5
years by mutual consent. In 1954, RA 1180 was enacted to regulate the retail
business. Said law provided that, after its enactment, a partnership not wholly
formed by Filipinos could continue to engage in the retail business until the
expiration of its term so registration of said Ang was refused on the ground
that the extension was in violation of the aforesaid Act.
Plaintiff Company filed a petition for declaratory relief contending their

original articles of partnership provided that they could extend the term of
their partnership; that it constitutes a property right of which the partners
cannot be deprived without due process or without their consent; and that the
provisions of RA 1180 cannot adversely affect them. Lower court dismissed
their petition. Plaintiff Co. interposed an appeal.
Issue:
Whether or not extension of the partnership established before the

enactment of RA 1180, is in violation of the said act.
Held:
The SC ruled that organizing a corporation is not a matter of right but

a mere privilege which may be enjoyed under the terms provided by state /
law. When the partners amended the articles of partnership, the provisions
of RA 1180 were already in force, and so the right claimed by plaintiff-
appellants to extend the original term of their partnership to another five years
would be in violation of the clear intent and purpose of the said law.
To organize a corporation or a partnership that could claim a juridical

personality of its own and transact business as such, is not a matter of absolute
right but a privilege which may be enjoyed only under such terms as the State
may deem necessary to impose. That the State, through Congress, and in the
manner provided by law, had the right to enact Republic Act No. 1180 and to
provide therein that only Filipinos and concerns wholly owned by Filipinos
may engage in the retail business cannot be seriously disputed. That this
provision was clearly intended to apply to partnership already existing at the
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time of the enactment of the law is clearly showing by its provision giving
them the right to continue engaging in their retail business until the expiration
of their term or life.
To argue that because the original articles of partnership provided that

the partners could extend the term of the partnership, the provisions of
Republic Act 1180 cannot be adversely affect appellants herein, is to
erroneously assume that the aforesaid provision constitute a property right of
which the partners can not be deprived without due process or without their
consent. The agreement contain therein must be deemed subject to the law
existing at the time when the partners came to agree regarding the extension.
In the present case, as already stated, when the partners amended the articles
of partnership, the provisions of Republic Act 1180 were already in force, and
there can be not the slightest doubt that the right claimed by appellants to
extend the original term of their partnership to another five years would be in
violation of the clear intent and purpose of the law aforesaid.
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INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC.,

vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE
FOOTBALL FEDERATION
G.R. No. 119002. October 19, 2000, Kapunan, J.
Before a corporation may acquire juridical personality, the State must

give its consent either in the form of a special law or a general enabling act,
and the procedure and conditions provided under the law for the acquisition
of such juridical personality must be complied with. The failure to comply
with the statutory procedure and conditions does not warrant a finding that
such association achieved the acquisition of a separate juridical personality,
even when it adopts sets of constitution and by-laws.
Facts:
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
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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.
CORPORATION LAW
MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS,

RODOLFO L. JOCSON, JR., MELVIN S. JURISPRUDENCIA,
AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN
vs. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION, TORMIL REALTY & DEVELOPMENT
CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T.
CARLOS, MA. LUISA T. MORALES and DANTE D. MORALES.
G.R. No. 120138 September 5, 1997, Kapunan, J.
Since all corporations, big or small, must abide by the provisions of the
Corporation Code, then even a simple family corporation cannot claim an
exemption nor can it have rules and practices other than those established by
law.
Facts:
The late Manuel A. Torres, Jr. was the major stockholder of Tormil
Realty & Development Corporation while private respondents who are the
children of Judge Torres' deceased brother Antonio A. Torres, constituted the
minority stockholders. In particular, their respective shareholdings and
positions in the corporation.
In 1984, Judge Torres, in order to make substantial savings in taxes,

adopted an "estate planning" scheme under which he assigned to Tormil
Realty & Development Corporation (Tormil for brevity) various real
properties he owned and his shares of stock in other corporations in exchange
for 225,972 Tormil Realty shares. Hence, on various dates in July and August
of 1984, ten (10) deeds of assignment were executed by the late Judge
Torres.Consequently, the aforelisted properties were duly recorded in the
inventory of assets of Tormil Realty and the revenues generated by the said
properties were correspondingly entered in the corporation's books of account
and financial records.
Due to the insufficient number of shares of stock issued to Judge Torres

and the alleged refusal of private respondents to approve the needed increase
in the corporation's authorized capital stock (to cover the shortage of 972
shares due to Judge Torres under the "estate planning" scheme), on 11
September 1986, Judge Torres revoked the two (2) deeds of assignment
covering the properties in Makati and Pasay City.
Issue:
Whether or not the deed of assignment executed can be revoked.
Ruling:
NO. The shortage of 972 shares would not be valid ground for
respondent Torres to unilaterally revoke the deeds of assignment he had
CORPORATION LAW
executed on July 13, 1984 and July 24, 1984 wherein he voluntarily assigned
to TORMIL real properties covered by TCT No. 374079 (Makati) and TCT
No. 41527, 41528 and 41529 (Pasay) respectively. A comparison of the
number of shares that respondent Torres received from TORMIL by virtue of
the "deeds of assignment" and the stock certificates issued by the latter to the
former readily shows that TORMIL had substantially performed what was
expected of it. In fact, the first two issuances were in satisfaction to the
properties being revoked by respondent Torres. Hence, the shortage of 972
shares would never be a valid ground for the revocation of the deeds covering
Pasay and Quezon City properties.
Moreover, we agree with the contention of the Solicitor General that

the shortage of shares should not have affected the assignment of the Makati
and Pasay City properties which were executed in 13 and 24 July 1984 and
the consideration for which have been duly paid or fulfilled but should have
been applied logically to the last assignment of property — Judge Torres'
Ayala Fund shares — which was executed on 29 August 1984.
CORPORATION LAW
TAN BOON BEE & CO., INC.

vs. THE HONORABLE HILARION U. JARENCIO, PRESIDING
JUDGE OF BRANCH XVIII of the Court of First Instance of Manila,
GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN CAN
DRUG CO.
G.R. No. L-41337. June 30, 1988, Paras, J.
Corporations are composed of natural persons and the legal fiction of

a separate corporate personality is not a shield for the commission of injustice
and inequity, such as the use of separate personality to avoid the execution of
the property of a sister company.
When the corporation is merely an adjunct, business conduit or alter

ego of another corporation, the fiction of separate and distinct corporation
entities should be disregarded.
Facts:
Petitioner herein, doing business under the name and style of Anchor
Supply Co., sold on credit to herein private respondent Graphic Publishing,
Inc. (GRAPHIC) paper products amounting to P55,214.73. On December 20,
1972, GRAPHIC made partial payment by check to petitioner in the total
amount of P24,848.74; and on December 21, 1972, a promissory note was
executed to cover the balance of P30,365.99. In the said promissory note, it
was stipulated that the amount will be paid on monthly installments and that
failure to pay any installment would make the amount immediately
demandable with an interest of 12% per annum. On September 6, 1973, for
failure of GRAPHIC to pay any installment, petitioner filed a complaint for
collection of Sum of Money.
A decision was rendered and became final and executory, where one
(1) unit printing machine identified as "Original Heidelberg Cylinder Press"
Type H 222, NR 78048, found in the premises of GRAPHIC was levied.
However, a third party claim was filed by Philippine American Drug
Company (PADCO), hence after trial the levy was rendered to be without
force.
Issue:
Whether or not the properties of PADCO could be levied due to the

allegation that it is mere an adjunct or conduit of Graphic.
Ruling:
YES. In the instant case, petitioner's evidence established that PADCO

was never engaged in the printing business; that the board of directors and the
officers of GRAPHIC and PADCO were the same; and that PADCO holds
50% share of stock of GRAPHIC. Petitioner likewise stressed that PADCO's
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own evidence shows that the printing machine in question had been in the
premises of GRAPHIC since May, 1965, long before PADCO even acquired
its alleged title on July 11, 1966 from Capitol Publishing. That the said
machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966,
even before PADCO purchased it from Capital Publishing on July 11, 1966,
only serves to show that PADCO's claim of ownership over the printing
machine is not only farce and sham but also unbelievable.
Considering the aforestated principles and the circumstances established in

this case, respondent judge should have pierced PADCO's veil of corporate
identity.
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CORPORATION LAW
PHILIPPINE STOCK EXCHANGE, INC.

vs. THE HONORABLE COURT OF APPEALS, SEC and PUERTO
AZUL LAND, INC.
G.R. No. 125469. October 27, 1997, Torres, Jr, J.
A corporation is but an association of individuals, allowed to transact

under an assumed corporate name, and with a distinct legal personality. In
organizing itself as a collective body, it waives no constitutional immunities
and perquisites appropriate to such a body.
Facts:
The Puerto Azul Land Inc. (PALI), a domestic real estate corporation,
had sought to offer its shares to the public in order to raise funds allegedly to
develop its properties and pay its loans with several banking institutions. In
January, 1995, PALI was issued a permit to sell its shares to the public by the
Securities and Exchange Commission (SEC). To facilitate the trading of its
shares among investors, PALI sought to course the trading of its shares
through the Philippine Stock Exchange Inc. (PSEi), for which purpose it filed
with the said stock exchange an application to list its shares, with supporting
documents attached pending the approval of the PALI’s listing application, a
letter was received by PSE from the heirs of Ferdinand Marcos to which the
latter claims to be the legal and beneficial owner of some of the properties
forming part of PALI’s assets. As a result, PSE denied PALI’s application
which caused the latter to file a complaint before the SEC. The SEC issued an
order to PSE to grant listing application of PALI on the ground that PALI have
certificate of title over its assets and properties and that PALI have complied
with all the requirements to enlist with PSE.
Issue:
Whether or not the denial of PALI’s application is proper.
Ruling:
Yes. This is in accord with the “Business Judgement Rule” whereby the
SEC and the courts are barred from intruding into business judgements of
corporations, when the same are made in good faith. The same rule precludes
the reversal of the decision of the PSE, to which PALI had previously agreed
to comply, the PSE retains the discretion to accept of reject applications for
listing. Thus, even if an issuer has complied with the PSE listing rules and
requirements, PSE retains the discretion to accept or reject the issuer’s listing
application if the PSE determines that the listing shall not serve the interests
of the investing public.
It is undeniable that the petitioner PSE is not an ordinary corporation,

in that although it is clothed with the markings of a corporate entity, it
functions as the primary channel through which the vessels of capital trade
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ply. The PSEi’s relevance to the continued operation and filtration of the
securities transaction in the country gives it a distinct color of importance such
that government intervention in its affairs becomes justified, if not
necessarily. Indeed, as the only operational stock exchange in the country
today, the PSE enjoys monopoly of securities transactions, and as such it
yields a monopoly of securities transactions, and as such, it yields an immerse
influence upon the country’s economy.
The SEC’s power to look into the subject ruling of the PSE, therefore,
may be implied from or be considered as necessary or incidental to the
carrying out of the SEC’s express power to insure fair dealing in securities
traded upon a stock exchange or to ensure the fair administration of such
exchange. It is likewise, observed that the principal function of the SEC is the
supervision and control over corporations, partnerships and associations with
the end in view that investment in these entities may be encouraged and
protected and their activities for the promotion of economic development.

under an assumed corporate name, and with a distinct legal personality. In
organizing itself as a collective body, it waives no constitutional immunities
and requisites appropriate to such a body as to its corporate and management
decisions, therefore, the state will generally not interfere with the same.
Questions of policy and management are left to the honest decision of the
officers and directors of a corporation, and the courts are without authority to
substitute their judgements for the judgement of the board of directors. The
board is the business manager of the corporation and so long as it acts in good
faith, its orders are not reviewable by the courts.
In matters of application for listing in the market the SEC may exercise such
power only if the PSE’s judgement is attended by bad faith.
The petitioner was in the right when it refused application of PALI, for
a contrary ruling was not to the best interest of the general public.
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BIBIANO O. REYNOSO, IV vs. HON. COURT OF APPEALS and

GENERAL CREDIT CORP.
G.R. Nos. 116124-25. November 22, 2000, Ynares-Santiago, J.
The corporation was evolved to make possible the aggregation and

assembling of huge amounts of capital upon which big business depends; and
has the advantage of non-dependence on the lives of those who compose it
even as it enjoys certain rights and conducts activities of natural persons.
Facts:
The Commercial Credit Corporation (CCC) decided to organize

franchise companies in different parts of the country, wherein it shall hold
thirty percent (30%) equity. Employees of the CCC were designated as
resident managers of the franchise companies. Petitioner Bibiano O. Reynoso,
IV was designated as the resident manager of the franchise company in
Quezon City, known as the Commercial Credit Corporation of Quezon City
(CCC-QC). CCC-QC entered into an exclusive management contract with
CCC whereby the latter was granted the management and full control of the
business activities of the former. Under the contract, CCC-QC shall sell,
discount and/or assign its receivables to CCC. Subsequently, this discounting
arrangement was discontinued pursuant to the so-called DOSRI Rule,
prohibiting the lending of funds by corporations to its directors, officers,
stockholders and other persons with related interests therein. On account of
the new restrictions imposed by the Central Bank policy by virtue of the
DOSRI Rule, CCC decided to form CCC Equity Corporation, (CCC-Equity),
a wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent
equity in CCC-QC, together with two seats in the latter’s Board of Directors.
Under the new set-up, several officials of Commercial Credit

Corporation, including petitioner Reynoso, became employees of CCC-
Equity. While petitioner continued to be the Resident Manager of CCC-QC,
he drew his salaries and allowances from CCC-Equity. The business activities
of CCC-QC pertain to the acceptance of funds from depositors who are issued
interest-bearing promissory notes. The amounts deposited are then loaned out
to various borrowers. Petitioner, in order to boost the business activities of
CCC-QC, deposited his personal funds in the company. In return, CCC-QC
issued to him its interest bearing promissory notes. CCC-QC to file a
complaint for sum of money against Reynoso. The cases were dismissed and
Reynoso was exonerated and at the same time CCC-QC was ordered to pay
Reynoso’s counterclaims which amounted to millions. A writ of execution
was issued against CCC-QC. The writ was opposed by CCC-QC as it now
claims that it has already closed and that its assets were taken over by the
mother company, CCC.
Meanwhile, Commercial Credit Corporation (CCC) changed its

name to General Credit Corporation (GCC). Reynoso then filed a petition
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for an alias writ of execution. GCC opposed the writ as it argued that it is a
separate and distinct corporation from CCC and CCC-QC, in short, it raises
the defense of corporate fiction.
Issue:
Whether or not General Credit Corporation (GCC) a corporation

separate and distinct from CCC-QC can raise the defense of corporate fiction
Ruling:
No. Any piercing of the corporate veil has to be done with caution.
However, the Court will not hesitate to use its supervisory and adjudicative
powers where the corporate fiction is used as an unfair device to achieve an
inequitable result, defraud creditors, evade contracts and obligations, or to
shield it from the effects of a court decision. The corporate fiction has to be
disregarded when necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al., we held:

When the fiction is urged as a means of perpetrating a fraud or an illegal act
or as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and
isolates the corporation from the members or stockholders who compose it
will be lifted to allow for its consideration merely as an aggregation of
individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of
corporate fiction in numerous cases where it was used, among others, to avoid
a judgment credit; to avoid inclusion of corporate assets as part of the estate
of a decedent; to avoid liability arising from debt; when made use of as a
shield to perpetrate fraud and/or confuse legitimate issues; or to promote
unfair objectives or otherwise to shield them.
In the appealed judgment, the Court of Appeals sustained respondent’s

arguments of separateness and its character as a different corporation which
is a non-party or stranger to this case. The defense of separateness will be
disregarded where the business affairs of a subsidiary corporation are so
controlled by the mother corporation to the extent that it becomes an
instrument or agent of its parent. But even when there is dominance over the
affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction
applies only when such fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime. We stated in Tomas Lao Construction
v. National Labor Relations Commission, that the legal fiction of a corporation
being a judicial entity with a distinct and separate personality was envisaged
for convenience and to serve justice. Therefore, it should not be used as a
subterfuge to commit injustice and circumvent the law.
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SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.

vs. COURT OF APPEALS, MOTORICH SALES CORPORATION,
NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and
JNM REALTY AND DEVELOPMENT CORP.
G.R. No. 129459. September 29, 1998, Panganiban, J.
One of the advantages of a corporate form of business organization is

the limitation of an investor’s liability to the amount of the investment. This
feature flows from the legal theory that a corporate entity is separate and
distinct from its stockholders. However, the statutorily granted privilege of a
corporate veil may be used only for legitimate purposes. On equitable
considerations, the veil can be disregarded when it is utilized as a shield to
commit fraud, illegality or inequity; defeat public convenience; confuse
legitimate issues; or serve as a mere alter ego or business conduit of a person
or an instrumentality, agency or adjunct of another corporation.
Facts:
A parcel of land was sold by Nenita Lee Gruenberg, the corporate

treasurer of defendant corporation Motorich Sale in favor of San Juan
Structural and Steel Fabricators, Inc. However, the latter failed to execute the
necessary Transfer of Rights/Deed of Assignment in favor of plaintiff-
appellant. Hence a case for damages was filed. The defendant corporation
questions the validity of the contract entered by its treasurer in its behalf
without authorization from the corporation’s Board.
Issue:
Whether or not the doctrine of piercing the veil of corporate fiction be

applied to Motorich.
Ruling:
NO. The contract cannot bind Motorich, because it never authorized or

ratified such sale. A corporation is a juridical person separate and distinct from
its stockholders or members. Accordingly, the property of the corporation is
not the property of its stockholders or members and may not be sold by the
stockholders or members without express authorization from the
corporation’s board of directors. The corporation may act only through its
board of directors, or, when authorized either by its bylaws or by its board
resolution, through its officers or agents in the normal course of business. The
general principles of agency govern the relation between the corporation and
its officers or agents, subject to the articles of incorporation, bylaws, or
relevant provisions of law.
As to the piercing of the corporate veil, the same is not applicable. In

the present case, the Court finds no reason to pierce the corporate veil of
Respondent Motorich. Petitioner utterly failed to establish that said
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corporation was formed, or that it is operated, for the purpose of shielding any
alleged fraudulent or illegal activities of its officers or stockholders; or that
the said veil was used to conceal fraud, illegality or inequity at the expense of
third persons, like petitioner.
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PIONEER INSURANCE & SURETY CORPORATION

vs. THE HON. COURT OF APPEALS, BORDER MACHINERY &
HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M.
MAGLANA and JACOB S. LIM
G.R. No. 84197. July 28, 1989, Gutierrez, Jr., J.
A defective attempt to form a corporation will not result in the

formation of a partnership.
Facts:
In 1965, Jacob S. Lim, owner-operator of Southern Airlines (SAL), a

single proprietorship entered into a sales contract with regarding Japan
Domestic Airlines (JDA) regarding 2 DC-#A type aircrafts, 1 set of necessary
spare parts where a Total of $ 190,000 in instalments are to be paid. Pioneer
Insurance and Surety Corp. as surety executed its surety bond in favor of JDA
on behalf of its principal Lim. Border Machinery and Heavy Equipment Co,
Inc. of Francisco and Modesto Cervantes and Constancio Maglana
contributed funds for the transaction based on the misrepresentation of Lim
that they will form a new corporation to expand his business.
Lim as owner operator for SAL executed in favor of Pioneer a deed of

chattel mortgage as security. A restructuring of obligation to change the
maturity was done twice without the knowledge of other defendants made the
surety of JDA prescribed so not entitled to reimbursement. Upon default on
the 2/8 payments, Pioneer paid for him and filed a petition for the foreclosure
of chattel mortgage as security. CA affirmed Trial of Merits: Only Lim is
liable to pay
Issue:
Whether or not there is failure of respondents to incorporate leading to

a de facto partnership.
Ruling:
NO. Partnership inter se does not necessarily exist, for ordinarily

CANNOT be made to assume the relation of partners as between themselves,
when their purpose is that no partnership shall exists. It should be implied
only when necessary to do justice between the parties (i.e. only pretend to
make others liable). Lim never intended to form a corporation.
CORPORATION LAW
KILOSBAYAN, INCORPORATED, ET. AL. VS. TEOFISTO

GUINGONA, PCSO AND PGMC
G.R. No. 11337. May 5, 1994, Davide, Jr., J.
Joint venture is defined as an association of persons or companies

jointly undertaking some commercial enterprise; generally all contribute
assets and share risks. It requires a community of interest in the performance
of the subject matter, a right to direct and govern the policy in connection
therewith, and duty, which may be altered by agreement to share both in profit
and losses. the acts of working together in a joint project.
Facts:
Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as

amended by B.P. Blg. 42) which grants it the authority to hold and conduct
“charity sweepstakes races, lotteries and other similar activities,” the PCSO
decided to establish an on-line lottery system for the purpose of increasing its
revenue base and diversifying its sources of funds. Sometime before March
1993, after learning that the PCSO was interested in operating an on-line
lottery system, the Berjaya Group Berhad, “a multinational company and one
of the ten largest public companies in Malaysia,” “became interested to offer
its services and resources to PCSO.” As an initial step, Berjaya Group Berhad
(through its individual nominees) organized with some Filipino investors in
March 1993 a Philippine corporation known as the Philippine Gaming
Management Corporation (PGMC), which “was intended to be the medium
through which the technical and management services required for the project
would be offered and delivered to PCSO.”
Before August 1993, the PCSO formally issued a Request for Proposal
(RFP) for the Lease Contract of an on-line lottery system for the PCSO. On
15 August 1993, PGMC submitted its bid to the PCSO. On 21 October 1993,
the Office of the President announced that it had given the respondent PGMC
the go-signal to operate the country’s on-line lottery system and that the
corresponding implementing contract would be submitted not later than 8
November 1993 “for final clearance and approval by the Chief Executive.”
On 4 November 1993, KILOSBAYAN sent an open letter to President

Fidel V. Ramos strongly opposing the setting up of the on-line lottery system
on the basis of serious moral and ethical considerations. Considering the
denial by the Office of the President of its protest and the statement of
Assistant Executive Secretary Renato Corona that “only a court injunction can
stop Malacañang,” and the imminent implementation of the Contract of Lease
in February 1994, KILOSBAYAN, with its co-petitioners, filed on 28 January
1994 this petition.
Petitioner claims that it is a non-stock domestic corporation composed

of civic-spirited citizens, pastors, priests, nuns, and lay leaders. The rest of the
petitioners, except Senators Freddie Webb and WigbertoTañada and
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Representative Joker P. Arroyo, are suing in their capacities as members of

the Board of Trustees of KILOSBAYAN and as taxpayers and concerned
citizens. Senators Webb and Tañada and Representative Arroyo are suing in
their capacities as members of Congress and as taxpayers and concerned
citizens of the Philippines. The public respondents, meanwhile allege that the
petitioners have no standing to maintain the instant suit, citing the Court’s
resolution in Valmonte vs. Philippine Charity Sweepstakes Office.
Issues:
1. Whether or not the petitioners have locus standi

2. Whether or the Contract of Lease in the light of Section 1 of R.A. No. 1169,
as amended by B.P. Blg. 42, which prohibits the PCSO from holding and
conducting lotteries “in collaboration, association or joint venture with any
person, association, company or entity, whether domestic or foreign.” is legal
and valid.
Ruling:
1. Yes. We find the instant petition to be of transcendental importance to the

public. The ramifications of such issues immeasurably affect the social,
economic, and moral well-being of the people even in the remotest barangays
of the country and the counter-productive and retrogressive effects of the
envisioned on-line lottery system are as staggering as the billions in pesos it
is expected to raise. The legal standing then of the petitioners deserves
recognition and, in the exercise of its sound discretion, this Court hereby
brushes aside the procedural barrier which the respondents tried to take
advantage of.
2. The language of Section 1 of R.A. No. 1169 is indisputably clear. The

PCSO cannot share its franchise with another by way of collaboration,
association or joint venture. Neither can it assign, transfer, or lease such
franchise. Whether the contract in question is one of lease or whether the
PGMC is merely an independent contractor should not be decided on the basis
of the title or designation of the contract but by the intent of the parties, which
may be gathered from the provisions of the contract itself. Animus hominisest
anima scripti. The intention of the party is the soul of the instrument.
Undoubtedly, from the very inception, the PCSO and the PGMC
mutually understood that any arrangement between them would necessarily
leave to the PGMC the technical, operations, and management aspects of the
on-line lottery system while the PSCO would, primarily, provide the
franchise. The so-called Contract of Lease is not, therefore, what it purports
to be. Woven therein are provisions which negate its title and betray the true
intention of the parties to be in or to have a joint venture for a period of eight
years in the operation and maintenance of the on-line lottery system.
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We thus declare that the challenged Contract of Lease violates the

exception provided for in paragraph B, Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law.
This conclusion renders unnecessary further discussion on the other issues
raised by the petitioners.
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PART II
NATURE AND ATTRIBUTES OF A

CORPORATION
21 Smith Bell & Co., vs. Natividad
23 Bataan Shipyard & Engineering Co. vs. PCGG
24 PNB vs. Court of Appeals
26 Philippine Commercial International Bank vs. Court of Appeals
29 Sia vs. Court of Appeals
31 Mambulao Lumber Co. vs. Philippine National Bank
33 Solid Homes, Inc. vs. Court of Appeals
35 Asset Privatization Trust vs. Court of Appeals
38 ABS-CBN Broadcasting Corp. vs. Court of Appeals
42 Roman Catholic Apostolic Administrator of Davao, Inc. vs. The
45 Register of Deeds of Rizal vs. Ung Sui Si Temple, 97 Phil 58
47 People vs. Quasha
49 Tatad vs. Garcia, Jr.
51 PLDT vs. National Telecommunications Commission
55 Filipinas Compania de Seguros vs. Christern, Huenefeld & Co., Inc.
57 Palting vs. San Jose Petroleum Inc.
CORPORATION LAW
SMITH, BELL & COMPANY (LTD.), v. JOAQUIN NATIVIDAD

G.R. No. 15574. September 17, 1919, Malcolm, J.
The due process clause is universal in its application to all persons

without regard to any differences of race, color, or nationality. Private
corporations, likewise, are "persons" within the scope of the guaranty insofar
as their property is concerned
Facts:
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under
the laws of the Philippine Islands. A majority of its stockholders are British
subjects. It is the owner of a motor vessel known as the Bato built for it in the
Philippine Islands in 1916, of more than fifteen tons gross The Bato was
brought to Cebu in the present year for the purpose of transporting plaintiff's
merchandise between ports in the Islands. Application (Certificate of
Philippine Regitry) was made at Cebu, the home port of the vessel, to the
Collector of Customs for a certificate of Philippine registry. The Collector
refused to issue the certificate, giving as his reason that all the stockholders of
Smith, Bell & Co., Ltd., were not citizens either of the United States or of the
Philippine Islands under Act No. 2761 which provides:
SEC. 1172. Certificate of Philippine register. — Upon registration of a

vessel of domestic ownership, and of more than fifteen tons gross, a certificate
of Philippine register shall be issued for it. If the vessel is of domestic
ownership and of fifteen tons gross or less, the taking of the certificate of
Philippine register shall be optional with the owner.
SEC. 1176. Investigation into character of vessel. — No application for

a certificate of Philippine register shall be approved until the collector of
customs is satisfied from an inspection of the vessel that it is engaged or
destined to be engaged in legitimate trade and that it is of domestic ownership
as such ownership is defined in section eleven hundred and seventy-two of this
Code.
Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the
equal protection of the laws because it, in effect, prohibits the corporation
from owning vessels, and because classification of corporations based on the
citizenship of one or more of their stockholders is capricious, and that Act No.
2761 deprives the corporation of its properly without due process of law
because by the passage of the law company was automatically deprived of
every beneficial attribute of ownership in the Bato and left with the naked title
to a boat it could not use.
Issue:
Whether the legislature through Act no. 2761 can deny registry of
vessel with foreign stockholders.
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Ruling:
Yes. We are inclined to the view that while Smith, Bell & Co. Ltd., a
corporation having alien stockholders, is entitled to the protection afforded by
the due-process of law and equal protection of the laws clause of the
Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine
Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the
right to register vessels in the Philippines coastwise trade, does not belong to
that vicious species of class legislation which must always be condemned, but
does fall within authorized exceptions, notably, within the purview of the
police power, and so does not offend against the constitutional provision.
The guaranties of the Fourteenth Amendment and so of the first

paragraph of the Philippine Bill of Rights, are universal in their application to
all person within the territorial jurisdiction, without regard to any differences
of race, color, or nationality. The word "person" includes aliens. Private
corporations, likewise, are "persons" within the scope of the guaranties in so
far as their property is concerned. Classification with the end in view of
providing diversity of treatment may be made among corporations, but
must be based upon some reasonable ground and not be a mere arbitrary
selection.
To justify that portion of Act no. 2761 which permits corporations or

companies to obtain a certificate of Philippine registry only on condition that
they be composed wholly of citizens of the Philippine Islands or of the United
States or both, as not infringing Philippine Organic Law, it must be done under
some one of the exceptions.
One of the exceptions to the general rule, most persistent and far
reaching in influence is, broad and comprehensive as it is, nor any other
amendment, "was designed to interfere with the power of the State, sometimes
termed its `police power,' to prescribe regulations to promote the health,
peace, morals, education, and good order of the people, and legislate so as to
increase the industries of the State, develop its resources and add to its wealth
and prosperity. From the very necessities of society, legislation of a special
character, having these objects in view, must often be had in certain districts.
This is the same police power which the United States Supreme Court say
"extends to so dealing with the conditions which exist in the state as to bring
out of them the greatest welfare in of its people." For quite similar reasons,
none of the provision of the Philippine Organic Law could have had the effect
of denying to the Government of the Philippine Islands, acting through its
Legislature, the right to exercise that most essential, insistent, and illimitable
of powers, the sovereign police power, in the promotion of the general welfare
and the public interest.
Without any subterfuge, the apparent purpose of the Philippine

Legislature is seen to be to enact an anti-alien shipping act. The ultimate
purpose of the Legislature is to encourage Philippine ship-building.
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BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO)

vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT1987
G.R. No. 75885. May 27, 1987. Narvasa, J.
It is elementary that the right against self-incrimination has no

application to juridical persons.
Facts:
This case arose from a sequestration order issued by the PCGG under
authority given by the president. Such sequestration order was sent and
received by petitioner. Pursuant to this sequestration orders, take over orders
were also issued to protect public interest and to prevent the disposal or
dissipation of business enterprises and properties taken over by the
government of the Marcos Administration or by entities or persons close to
former President Marcos, until the transactions leading to such acquisition by
the latter can be disposed of by the appropriate authorities. However, among
other facts, the petitioner questions the exercise of PCGGs right of ownership
and management when it terminated several contracts without the consent of
both parties, to enter contracts, and to operate its quarry business, and
especially its right of vote during stockholders’ meetings.
Issue:
Whether or not PCGG may vote in stockholders’ meetings.
Ruling:
YES. PCGG may properly exercise the prerogative to vote sequestered

stock of corporations, granted to it by the President of the Philippines through
a Memorandum dated June 26, 1986. That Memorandum authorizes the
PCGG, pending the outcome of proceedings to determine the ownership of
sequestered shares of stock, to vote such shares of stock as it may have
sequestered in corporations at all stockholders' meetings called for the election
of directors, declaration of dividends, amendment of the Articles of
Incorporation, etc. Moreover, in the case at bar, there was adequate
justification to vote the incumbent directors out of office and elect others in
their stead because the evidence showed prima facie that the former were just
tools of President Marcos and were no longer owners of any stock in the firm,
if they ever were at all.
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PHILIPPINE NATIONAL BANK vs. THE COURT OF APPEALS,

RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE
AMERICAN GENERAL INSURANCE COMPANY, INC.
G.R. No. L-27155 May 18, 1978, Antonio, J.
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. That a principal
or master is liable for every tort which he expressly directs or authorizes, is
just as true of a corporation as a natural person.
Facts:
Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured

by her sugar crops about to be harvested including her export quota allocation
worth 1,000 piculs. The said export quota was later dealt by Tapnio to a certain
Jacobo Tuazon at P2.50 per picul or a total of P2,500. Since the subject of the
deal is mortgaged with PNB, the latter has to approve it. The branch manager
of PNB recommended that the price should be at P2.80 per picul which was
the prevailing minimum amount allowable. Tapnio and Tuazon agreed to the
said amount. And so the bank manager recommended the agreement to the
vice president of PNB. The vice president in turn recommended it to the board
of directors of PNB.
However, the Board of Directors wanted to raise the price to P3.00 per
picul. This Tuazon does not want hence he backed out from the agreement.
This resulted to Tapnio not being able to realize profit and at the same time
rendered her unable to pay her P2,000.00 crop loan which would have been
covered by her agreement with Tuazon.
Eventually, Tapnio was sued by her other creditors and Tapnio filed a
third party complaint against PNB where she alleged that her failure to pay
her debts was because of PNB’s negligence and unreasonableness.
Issue:
Whether or not Tapnio is correct.
Held:
Yes. In this type of transaction, time is of the essence considering that

Tapnio’s sugar quota for said year needs to be utilized ASAP otherwise her
allotment may be assigned to someone else, and if she can’t use it, she won’t
be able to export her crops. It is unreasonable for PNB’s board of directors to
disallow the agreement between Tapnio and Tuazon because of the mere
difference of 0.20 in the agreed price rate. What makes it more unreasonable
CORPORATION LAW
is the fact that the P2.80 was recommended both by the bank manager and
PNB’s VP yet it was disapproved by the board. Further, the P2.80 per picul
rate is the minimum allowable rate pursuant to prevailing market trends that
time. This unreasonable stand reflects PNB’s lack of the reasonable degree of
care and vigilance in attending to the matter. PNB is therefore negligent.
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 it
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.”
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PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly

INSULAR BANK OF ASIA AND AMERICA) vs. COURT OF
APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A.
G.R. No. 121413 January 29, 2001, Quisumbing, J.
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA
and Ford and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and
PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).
G.R. No. 121413/G.R. No. 121479
As a general rule, a banking corporation is liable for the wrongful or

tortuous acts and declarations of its officers or agents within the course and
scope of their employment. A bank will be held liable for the negligence of its
officers or agents when acting within the course and scope of their
employment, even as regards that species of tort of which malice is an
essential element. In this case, we find a situation where the PCIBank appears
also to be the victim of the scheme hatched by a syndicate in which its own
management employees had participated.
Facts:
In October 1977, Ford Philippines drew a Citibank check in the amount

of P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR).
The check represents Ford’s tax payment for the third quarter of 1977. On the
face of the check was written “Payee’s account only” which means that the
check cannot be encashed and can only be deposited with the CIR’s savings
account (which is with Metrobank). The said check was however presented to
PCIB and PCIB accepted the same. PCIB then indorsed the check for clearing
to Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR
later informed Ford that it never received the tax payment.
An investigation ensued and it was discovered that Ford’s accountant

Godofredo Rivera, when the check was deposited with PCIB, recalled the
check since there was allegedly an error in the computation of the tax to be
paid. PCIB, as instructed by Rivera, replaced the check with two of its
manager’s checks.
It was further discovered that Rivera was actually a member of a

syndicate and the manager’s checks were subsequently deposited with the
Pacific Banking Corporation by other members of the syndicate. Thereafter,
Rivera and the other members became fugitives of justice.
G.R. No. 128604

In July 1978 and in April 1979, Ford drew two checks in the amounts
of P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for
tax payments. Both checks are for “Payee’s account only” or for the CIR’s
bank savings account only with Metrobank. Again, these checks never
reached the CIR.
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In an investigation, it was found that these checks were embezzled by

the same syndicate to which Rivera was a member. It was established that an
employee of PCIB, also a member of the syndicate, created a PCIB account
under a fictitious name upon which the two checks, through high end
manipulation, were deposited. PCIB unwittingly endorsed the checks to
Citibank which the latter cleared. Upon clearing, the amount was withdrawn
from the fictitious account by syndicate members.
Issue:
What are the liabilities of each party?
Held:
G.R. No. 121413/G.R. No. 121479

PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a
collecting bank has been negligent in verifying the authority of Rivera to
negotiate the check. It failed to ascertain whether or not Rivera can validly
recall the check and have them be replaced with PCIB’s manager’s checks as
in fact, Ford has no knowledge and did not authorize such. A bank (in this
case PCIB) which cashes a check drawn upon another bank (in this case
Citibank), without requiring proof as to the identity of persons presenting it,
or making inquiries with regard to them, cannot hold the proceeds against the
drawee when the proceeds of the checks were afterwards diverted to the hands
of a third party. Hence, PCIB is liable for the amount of the embezzled check.
G.R. No. 128604

PCIB and Citibank are liable for the amount of the checks on a 50-50
basis.
As a general rule, a bank is liable for the negligent or tortuous act of its
employees within the course and apparent scope of their employment or
authority. Hence, PCIB is liable for the fraudulent act of its employee who set
up the savings account under a fictitious name.
Citibank is likewise liable because it was negligent in the performance

of its obligations with respect to its agreement with Ford. The checks which
were drawn against Ford’s account with Citibank clearly states that they are
payable to the CIR only yet Citibank delivered said payments to PCIB.
Citibank however argues that the checks were indorsed by PCIB to Citibank
and that the latter has nothing to do but to pay it. The Supreme Court cited
Section 62 of the Negotiable Instruments Law which mandates the Citibank,
as an acceptor of the checks, to engage in paying the checks according to the
tenor of the acceptance which is to deliver the payment to the “payee’s
account only”.
But the Supreme Court ruled that in the consolidated cases, that PCIB
and Citibank are not the only negligent parties. Ford is also negligent for
CORPORATION LAW
failing to examine its passbook in a timely manner which could have avoided
further loss. But this negligence is not the proximate cause of the loss but is
merely contributory. Nevertheless, this mitigates the liability of PCIB and
Citibank hence the rate of interest, with which PCIB and Citibank is to pay
Ford, is lowered from 12% to 6% per annum.
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JOSE O. SIA vs. PEOPLE OF THE PHILIPPINES AND TORRE DE

ORO DEVELOPMENT CORPORATION
G.R. No. L-30896 April 28, 1983, De Castro, J.
A corporation is an artificial person, an abstract being. If the defense

theory is followed unscrupulously legions would form corporations to commit
swindle right and left where nobody could be convicted, for it would be futile
and ridiculous to convict an abstract being that cannot be pinched and
confined in jail like a natural, living person, hence the result of the defense
theory would be hopeless chose in business and finance. It is completely
untenable.
Facts:
Petitioner, Jose O. Sia, was the president and general manager of Metal
Manufacturing of the Philippines (MEMAP). He was convicted of estafa for
his failure to return the cold rolled steel sheets or account for the proceeds of
those which were sold, to Continental Bank, herein complainant. Petitioner
contended that he cannot be made liable for the crime charged as he only acted
for and in behalf of MEMAP as its president.
Issue:
Whether petitioner could be held liable for estafa.
Ruling:
The Court ruled in the negative. The case of People vs. Tan Boon Kong
(54 Phil. 607) provides for the general principle that for crimes committed by
a corporation, the responsible officers thereof would personally bear the
criminal liability as a corporation is an artificial person, an abstract being.
However, the Court ruled that such principle is not applicable in this case
because the act alleged to be a crime is not in the performance of an act
directly ordained by law to be performed by the corporation.
The act is imposed by agreement of parties, as a practice observed in

the usual pursuit of a business or a commercial transaction. The offense may
arise, if at all, from the peculiar terms and condition agreed upon by the parties
to the transaction, not by direct provision of the law.
In the absence of an express provision of law making the petitioner

liable for the criminal offense committed by the corporation of which he is a
president as in fact there is no such provisions in the Revised Penal Code
under which petitioner is being prosecuted, the existence of a criminal liability
on his part may not be said to be beyond any doubt.
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In all criminal prosecutions, the existence of criminal liability for which

the accused is made answerable must be clear and certain. Further, the civil
liability imposed by the trust receipt is exclusively on the Metal Company.
Speaking of such liability alone, the petitioner was never intended to be

equally liable as the corporation. Without being made so liable personally as
the corporation is, there would then be no basis for holding him criminally
liable, for any violation of the trust receipt.
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MAMBULAO LUMBER COMPANY

vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO
Deputy Prov’l Sheriff of Camarines Norte
G.R. No.L-22973.January 30, 1968, Angeles, J.
Facts:
Plaintiff applied for an industrial loan of P155, 000.00 with the PNB
and the former offered real estate, machinery, logging and transportation
equipment as collaterals. The application was approved for a loan of P100,
000.00 only. To secure the payment of the loan, the plaintiff mortgaged to
defendant PNB a parcel of land, together with the buildings and improvements
existing thereon, situated in the province of Camarines Norte, and covered by
TCT No. 381 of the land records of said province, as well as various sawmill
equipment, rolling unit and other fixed assets of the plaintiff, all situated in its
compound in the aforementioned municipality.
PNB released from the approved loan the sum of P27, 500.00, for which
the plaintiff signed a promissory note wherein it promised to pay to the PNB.
PNB made another release of P15, 500.00 as part of the approved loan granted
to the plaintiff and so on the said date, the latter executed another promissory
note. Plaintiff failed to pay the amortization on the amounts released to and
received by it. Repeated demands were made upon the plaintiff to pay its
obligation but it failed or otherwise refused to do so. Upon inspection and
verification made by employees of the PNB, it was found that the plaintiff had
already stopped operation.
PNB initiated steps to have the properties extrajudicially foreclosed.

The Plaintiff opposed. The foreclosure sale of the parcel of land, together
with the buildings and improvements thereon, was held 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. PNB sold the
properties to Mariano Bundok. The Security guard of the properties refused
to let PNB’s successor in interest to retrieve properties inside the premises of
the property bought by them.
RTC sentenced the Mambulao Lumber Company to pay to the

defendant PNB. Mambulao therefore appealed.
Issue:
Whether or not a corporation can be awarded moral damages.
Ruling:
NO. An artificial person like herein appellant corporation cannot

experience physical sufferings, mental anguish, fright, serious anxiety,
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wounded feelings, moral shock or social humiliation which are basis or moral
damages.
A Corporation may have a good reputation 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 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.
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SOLID HOMES vs. CA, STATE FINANCE CENTER, INC &

REGISTER OF DEEDS FOR RIZAL
G.R. No. 117501, July 8, 1997, Panganiban, J.
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. 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. Mental suffering can be experienced
only by one having a nervous system and it flows from real ills, sorrows, and
griefs of life—all of which cannot be suffered by respondent bank as an
artificial person.
Facts:
On June 4, 1979, Solid Homes executed in favour of State Financing a

Real Estate Mortgage on its properties in order to secure the payment of a loan
of P10,000,000.00 which the former obtained from the latter. A year after,
Solid Homes applied for and was granted an additional loan of P1,511,270.03
by State Financing, and to secure its payment, Solid Homes executed the
Amendment to Real Estate Mortgage dated June 4, 1980 Sometime thereafter,
Solid Homes obtained additional credits and financing facilities from State
Financing in the sum of P1,499,811,97, and to secure its payment, Solid
Homes executed in favor of State Financing the Amendment to Real Estate
Mortgage dated March 5, 1982 whereby the mortgage executed on its
properties on June 4, 1979 was again amended.
When the loan obligations abovementioned became due and payable,

State Financing made repeated demands upon Solid Homes for the payment
thereof, but the latter failed to do so. So, on December 16, 1982, State
Financing filed a petition for extrajudicial foreclosure of the mortgages
abovementioned with the Provincial Sheriff of Rizal, who, in pursuance of the
petition, issued a Notice of Sheriff's Sale dated February 4, 1983 whereby the
mortgaged properties of Solid Homes and the improvements existing thereon,
were set for public auction sale on March 7, 1983 in order to satisfy the full
amount of Solid Homes' mortgage indebtedness, the interest thereon, and the
fees and expenses incidental to the foreclosure proceedings.
Before the scheduled public auction sale . . . , the mortgagor Solid

Homes made representations and induced State Financing to forego with the
foreclosure of the real estate mortgages referred to above. By reason thereof,
State Financing agreed to suspend the foreclosure of the mortgaged properties
subject to the terms and conditions they agreed upon, and in pursuance of their
said agreement, they executed a document entitled MEMORANDUM OF
AGREEMENT/DACION EN PAGO.
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However, Solid Homes failed to comply with such agreement. So,

pursuant to the Dacion en Pago agreement, the properties of Solid Homes
were now transferred and registered in the name of State Financing.
Later, Solid Homes filed an action against State Financing seeking the
annulment of said Memorandum and the consequent reinstatement of the
mortgages over the same properties. The trial court held that the Memorandum
of Agreement/Dacion En Pago executed by the parties was valid and binding.
Both parties appealed from the trial court's decision. Solid Homes
raised a lone question contesting the denial of its claim for damages. Such
damages allegedly resulted from the bad faith and malice of State Financing
in deliberately failing to annotate Solid Homes' right to repurchase the subject
properties in the former's consolidated titles thereto. As a result of the non-
annotation, Solid Homes claimed to have been prevented from generating
funds from prospective buyers to enable it to comply with the Agreement and
to redeem the subject properties. Solid Homes among others is claiming for
payment of moral damages.
Issue:
Whether or not Solid Homes is entitled to moral damages.
Ruling:
NO. Neither can moral damages be awarded to petitioner. Time and

again, we have held that a corporation — being an artificial person which has
no feelings, emotions or senses, and which cannot experience physical
suffering or mental anguish — is not entitled to moral damages.
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ASSET PRIVATIZATION TRUST vs COURT OF APPEALS

300 SCRA 579 GR NO. 121171 DECEMBER 29, 1998
Moral damages include besmirched reputation which a corporation

may possibly suffer
Facts:
The development, exploration and utilization of the mineral deposits

in the Surigao Mineral Reservation have been authorized by the Republic Act
No. 1528, as amended by Republic Act No. 2077 and Republic Act No. 4167,
by virtue of which laws, a memorandum of agreement was drawn on July 3,
1968, whereby the Republic of the Philippines thru the Surigao Mineral
Reservation Board, granted MMIC the exclusive right to explore, develop and
exploit nickel, cobalt, and other minerals in the Surigao Mineral Reservation.
MMIC is a domestic corporation engaged in mining with respondent Jesus S.
Cabarrus Sr. as president and among its original stockholders.
The Philippine government undertook to support the financing of

MMIC by purchase of MMIC debenture bonds and extension of guarantees.
Further, from the DBP and/or the government financing institutions to
subscribe in MMIC and issue guarantee/s of foreign loans or deferred payment
arrangements secured from the US Eximbank, Asian Development Bank
(ADB), Kobe steel of amount not exceeding US$100 million. On July 13,
1981, MMIC, PNB, and DBP executed a mortgage trust agreement whereby
MMIC as mortgagor, agreed to constitute a mortgage in favor of PNB and
DBP as mortgages, over all MMIC assets; subject of real estate and chattel
mortgage executed by the mortgagor, and additional assets described and
identified, including assets of whatever kind, nature or description, which the
mortgagor may acquire whether in substitution of, in replenishment or in
addition thereto. Due to the unsettled obligations, a financial restructuring
plan (FRP) was suggested, however not finalized. The obligations matured
and the mortgage was foreclosed.
The foreclosed assets were sold to PNB as the lone bidder and were
assigned to the newly formed corporations namely Nonoc Mining
Corporation, Maricalum Mining and Industrial Corporation and Island
Cement Corporation. In 1986, these assets were transferred to the asset
privatization trust. On February 28, 1985, Jesus S. Cabarrus Sr. together with
the other stockholders of MMIC, filed a derivative suit against DBP and PNB
before the RTC of Makati branch 62, for annulment of foreclosures, specific
performance and damages. The suit docketed as civil case no. 9900, prayed
that the court: 1.) Annul the foreclosures, restore the foreclosed assets to
MMIC, and require the banks to account for their use and operation in the
interim; 2.) Direct the banks to honor and perform their commitments under
the alleged FRP; 3.) Pay moral and exemplary damages, attorney’s fees,
litigation expenses and costs. A compromise and arbitration agreement was
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entered by the parties to which committee awarded damages in favor of

Cabarrus.
Issue:
Whether or not the award granted to Cabarrus was proper.
Held:
No. Civil case no. 9900 filed before the RTC being a derivative suit,
MMIC should have been impleaded as a party. It was not joined as a part
plaintiff or party defendant at any stage before of the proceedings as it is, the
award for damages to MMIC, which was not party before the arbitration
committee is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party
in interest while the stockholder filing suit for the corporation’s behalf is only
a nominal party. The corporation should be included a party in the suit.
An individual stockholder is permitted to institute a derivative suit on

behalf of the corporation wherein he holds stock in order to protect or
vindicate corporate rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued or hold the control of the corporation. In such
actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real part in interest.
It is a condition sine qua non that the corporation be impleaded as a

party because – not only is the corporation an indispensable party, but it is
also the present rule that it must be served with process. The reason given is
that the judgement must be made binding upon the corporation in order that
the corporation may get the benefit of the suit and may not bring a subsequent
suit against the same defendants for the same cause of action. In other words
the corporation must be joined as a party because it is its cause of action that
is being litigated and because judgement must be a res judicata against it.
The reasons given for not allowing direct individual suit are:
1. That the prior rights of the creditors may be prejudiced. Thus, our
Supreme Court held in the case of Evangelista vs Santos that the
“Stockholders may not directly claim those damages for themselves for
that would result in the appropriation by, and the distribution among
them of part of the corporate assets before the
2. The universally recognized doctrine that a stockholder in a corporation
has no title legal or equitable to the corporate property; that both of
these are in the corporation itself for the benefit of the stockholders. In
other words, to allow shareholders to sue separately would conflict with
the separate corporate entity principle.
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3. dissolution of the corporation and the liquidation of its debts and

liabilities, something which cannot be legally done in view of section
16 of the corporation law.
4. The filing of such suits would conflict with the duty of the management
to sue for the protection of all concerned;
5. It would produce wasteful multiplicity of suits; and
6. It would involve confusion in ascertaining the effect of partial recovery
by an individual on the damages recoverable by the corporation for the
same act.
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ABS-CBN BROADCASTING CORPORATION vs. HONORABLE

COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA
PRODUCTION, INC., and VICENTE DEL ROSARIO,
G.R. No. 128690 January 21, 1999
The possible basis of recovery of a corporation for damages would be

under Articles 19, 20 and 21 of the Civil Code, but which requires a clear
proof of malice or bad faith.
Facts:
In 1992, ABS-CBN Broadcasting Corporation, through its vice

president Charo Santos-Concio, requested Viva Production, Inc. to allow
ABS-CBN to air at least 14 films produced by Viva. Pursuant to this request,
a meeting was held between Viva’s representative (Vicente Del Rosario) and
ABS-CBN’s Eugenio Lopez (General Manager) and Santos-Concio was held
on April 2, 1992. During the meeting Del Rosario proposed a film package
which will allow ABS-CBN to air 104 Viva films for P60 million. Later,
Santos-Concio, in a letter to Del Rosario, proposed a counterproposal of 53
films (including the 14 films initially requested) for P35 million. Del Rosario
presented the counter offer to Viva’s Board of Directors but the Board rejected
the counter offer. Several negotiations were subsequently made but on April
29, 1992, Viva made an agreement with Republic Broadcasting Corporation
(referred to as RBS – or GMA 7) which gave exclusive rights to RBS to air
104 Viva films including the 14 films initially requested by ABS-CBN.
ABS-CBN now filed a complaint for specific performance against Viva

as it alleged that there is already a perfected contract between Viva and ABS-
CBN in the April 2, 1992 meeting. Lopez testified that Del Rosario agreed to
the counterproposal and he (Lopez) even put the agreement in a napkin which
was signed and given to Del Rosario. ABS-CBN also filed an injunction
against RBS to enjoin the latter from airing the films. The injunction was
granted. RBS now filed a countersuit with a prayer for moral damages as it
claimed that its reputation was debased when they failed to air the shows that
they promised to their viewers. RBS relied on the ruling in People vs Manero
and Mambulao Lumber vs PNB which states that a corporation may recover
moral damages if it “has a good reputation that is debased, resulting in social
humiliation”. The trial court ruled in favor of Viva and RBS. The Court of
Appeals affirmed the trial court.
Issues:
1. Whether or not a contract was perfected in the April 2, 1992 meeting

between the representatives of the two corporations.
2. Whether or not a corporation, like RBS, is entitled to an award of moral

damages upon grounds of debased reputation.
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Rulings:
1. No. There is no proof that a contract was perfected in the said meeting.
Lopez’ testimony about the contract being written in a napkin is not
corroborated because the napkin was never produced in court. Further, there
is no meeting of the minds because Del Rosario’s offer was of 104 films for
P60 million was not accepted. And that the alleged counter-offer made by
Lopez on the same day was not also accepted because there’s no proof of such.
The counter offer can only be deemed to have been made days after the April
2 meeting when Santos-Concio sent a letter to Del Rosario containing the
counter-offer. Regardless, there was no showing that Del Rosario accepted.
But even if he did accept, such acceptance will not bloom into a perfected
contract because Del Rosario has no authority to do so.
As a rule, corporate powers, such as the power; to enter into contracts;

are exercised by the Board of Directors. But this power may be delegated to a
corporate committee, a corporate officer or corporate manager. Such a
delegation must be clear and specific. In the case at bar, there was no such
delegation to Del Rosario. The fact that he has to present the counteroffer to
the Board of Directors of Viva is proof that the contract must be accepted first
by the Viva’s Board. Hence, even if Del Rosario accepted the counter-offer,
it did not result to a contract because it will not bind Viva sans authorization.
2. No. 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 call be
experienced only by one having a nervous system. No moral damages can be
awarded to a juridical person. The statement in the case of People vs Manero
and Mambulao Lumber vs PNB is a mere obiter dictum hence it is not binding
as a jurisprudence.
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REYNALDO T. COMETA and STATE INVESTMENT TRUST,

INC., petitioners, vs. COURT OF APPEALS, HON.GEORGE MACLI-
ING, in his capacity as Presiding Judge, Regional Trial Court, Quezon
City Branch 100, REYNALDO S. GUEVARA and HONEYCOMB
BUILDERS, INC.
G.R. No. 124062 January 21, 1999
While it is true that a criminal case can only be filed against the officers
of a corporation and not against the corporation itself, it does not follow from
this, however, that the corporation cannot be a real-party-in-interest for the
purpose of bringing a civil action for malicious prosecution for the damages
incurred by the corporation for the criminal proceedings brought against its
officer.
Facts:
Reynaldo Cometa is the president of State Investment Trust, Inc. (SITI),

a lending firm. Reynaldo Guevara is the president of Honeycomb Builders,
Inc. (HBI), a real estate developer. Guevara is also the chairman of the board
of Guevent Industrial Development Corp., (GIDC).
GIDC took out a loan from SITI and secured the loan by mortgaging
some of its properties to SITI. GIDC defaulted in paying and so SITI
foreclosed the mortgaged assets. GIDC later sued SITI as it alleged that the
foreclosure was irregular. While the case was pending, the parties entered into
a compromise agreement where GIDC accepted HBI’s offer to purchase the
mortgaged assets. But SITI did not approve of said proposal.
GIDC then filed a request for clarification with the trial court and the
latter directed SITI to accept the proposal. Meanwhile, HBI filed a request
with the HLURB asking the latter to grant them the right to develop the
mortgaged assets. HBI submitted an affidavit allegedly signed by Cometa.
The affidavit purported that Cometa and SITI is not opposing HBI’s petition
with the HLURB.
Cometa assailed the affidavit as it was apparently forged as proven by

an NBI investigation. Subsequently, Cometa filed a criminal action for
falsification of public document against Guevara. The prosecutor initially did
not file the information as he finds no cause of action but the then DOJ
Secretary (Drilon) directed the fiscal to file an information against Guevara.
The case was dismissed. In turn, Guevara filed a civil case for malicious
prosecution against Cometa. Guevara, in his complaint, included HBI as a co-
plaintiff.
Issue:
Whether or not HBI is appropriately added as a co-plaintiff.
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Ruling:
Yes. It is true that a criminal case can only be filed against the officers
of a corporation and not against the corporation itself. But it does not follow
that the corporation cannot be a real-party-in-interest for the purpose of
bringing a civil action for malicious prosecution. As pointed out by the trial
judge, and as affirmed by the Court of Appeals, the allegation by Cometa that
Guevara has no cause of action with HBI not being a real party in interest is a
matter of defense which can only be decisively determined in a full blown
trial.
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ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO,

INC. vs. THE LAND REGISTRATION COMMISSION AND THE
REGISTER OF DEEDS OF DAVAO CITY,
G.R. NO. L-8451, DECEMBER 20,1957
The donation of land to an unincorporated religious organization,

whose trustees are foreigners, cannot be allowed registration for being
violation of the constitutional prohibition and it would not be violation of the
freedom of religion clause. The fact that the religious association “has no
capital stock does not suffice to escape the constitutional inhibition, since it
is admitted that its members are of foreign nationality.
Facts:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of

the City of Davao, executed a deed of sale of a parcel of land located in the
same city covered by Transfer Certificate No. 2263, in favor of the Roman
Catholic Apostolic Administrator of Davao Inc.,(RCADI) is corporation sole
organized and existing in accordance with Philippine Laws, with Msgr. Clovis
Thibault, a Canadian citizen, as actual incumbent. Registry of Deeds Davao
(RD) required RCADI to submit affidavit declaring that 60% of its members
were Filipino Citizens. As the RD entertained some doubts as to the
registerability of the deed of sale, the matter was referred to the Land
Registration Commissioner (LRC) en consulta for resolution. LRC hold that
pursuant to provisions of sections 1 and 5 of Article XII of the Philippine
Constitution, RCADI is not qualified to acquire land in the Philippines in the
absence of proof that at leat 60% of the capital, properties or assets of the
RCADI is actually owned or controlled by Filipino citizens. LRC also denied
the registration of the Deed of Sale in the absence of proof of compliance with
such requisite. RCADI’s Motion for Reconsideration was denied. Aggrieved,
the latter filed a petition for mandamus.
Issue:
Whether or not the Universal Roman Catholic Apostolic Church in the

Philippines, or better still, the corporation sole named the Roman Catholic
Apostolic Administrator of Davao, Inc., is qualified to acquire private
agricultural lands in the Philippines pursuant to the provisions of Article XIII
of the Constitution.
Ruling:
RCADI is qualified. While it is true and We have to concede that in

the profession of their faith, the Roman Pontiff is the supreme head; that in
the religious matters, in the exercise of their belief, the Catholic congregation
of the faithful throughout the world seeks the guidance and direction of their
Spiritual Father in the Vatican, yet it cannot be said that there is a merger of
personalities resultant therein. Neither can it be said that the political and civil
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rights of the faithful, inherent or acquired under the laws of their country, are
affected by that relationship with the Pope. The fact that the Roman Catholic
Church in almost every country springs from that society that saw its
beginning in Europe and the fact that the clergy of this faith derive their
authorities and receive orders from the Holy See do not give or bestow the
citizenship of the Pope upon these branches.
Citizenship is a political right which cannot be acquired by a sort of

“radiation”. We have to realize that although there is a fraternity among all
the catholic countries and the dioceses therein all over the globe, the
universality that the word “catholic” implies, merely characterize their faith,
a uniformity in the practice and the interpretation of their dogma and in the
exercise of their belief, but certainly they are separate and independent from
one another in jurisdiction, governed by different laws under which they are
incorporated, and entirely independent on the others in the management and
ownership of their temporalities.
To allow theory that the Roman Catholic Churches all over the world
follow the citizenship of their Supreme Head, the Pontifical Father, would
lead to the absurdity of finding the citizens of a country who embrace the
Catholic faith and become members of that religious society, likewise citizens
of the Vatican or of Italy. And this is more so if We consider that the Pope
himself may be an Italian or national of any other country of the world. The
same thing be said with regard to the nationality or citizenship of the
corporation sole created under the laws of the Philippines, which is not altered
by the change of citizenship of the incumbent bishops or head of said
corporation sole.
We must therefore, declare that although a branch of the Universal

Roman Catholic Apostolic Church, every Roman Catholic Church in different
countries, if it exercises its mission and is lawfully incorporated in accordance
with the laws of the country where it is located, is considered an entity or
person with all the rights and privileges granted to such artificial being under
the laws of that country, separate and distinct from the personality of the
Roman Pontiff or the Holy See, without prejudice to its religious relations
with the latter which are governed by the Canon Law or their rules and
regulations.
It has been shown before that: (1) the corporation sole, unlike the
ordinary corporations which are formed by no less than 5 incorporators, is
composed of only one persons, usually the head or bishop of the diocese, a
unit which is not subject to expansion for the purpose of determining any
percentage whatsoever; (2) the corporation sole is only the administrator and
not the owner of the temporalities located in the territory comprised by said
corporation sole; (3) such temporalities are administered for and on behalf of
the faithful residing in the diocese or territory of the corporation sole; and (4)
the latter, as such, has no nationality and the citizenship of the incumbent
Ordinary has nothing to do with the operation, management or administration
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of the corporation sole, nor effects the citizenship of the faithful connected
with their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem

obvious that when the specific provision of the Constitution invoked by
respondent Commissioner (section 1, Art. XIII), was under consideration, the
framers of the same did not have in mind or overlooked this particular form
of corporation. If this were so, as the facts and circumstances already indicated
tend to prove it to be so, then the inescapable conclusion would be that this
requirement of at least 60 per cent of Filipino capital was never intended to
apply to corporations sole, and the existence or not a vested right becomes
unquestionably immaterial.
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REGISTER OF DEEDS OF RIZAL vs. UNG SUI SI TEMPLE

(97 Phil 58, 1955) G.R. No. L-6776. May 21, 1955
The purpose of the sixty per centum requirement is obviously to ensure

that corporations or associations allowed to acquire agricultural land or to
exploit natural resources shall be controlled by Filipinos; and the spirit of the
Constitution demands that in the absence of capital stock, the controlling
membership should be composed of Filipino citizens.
Nature:
Ordinary appeal with defendant claiming: (1) that the acquisition of the
land in question, for religious purposes, is authorized and permitted by Act
No. 271 of the old Philippine Commission, and (2) that the refusal of the
Register of Deeds violates the freedom of religion clause of the Constitution.
Facts:
The Register of Deeds for the province of Rizal refused to accept for
record a deed of donation executed in due form on January 22, 1953, by Jesus
Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan,
Rizal, known as lot No. 2, block 48-D, PSD-4212, G.L.R.O. Record No.
11267, in favor of the unregistered religious organization "Ung Siu Si
Temple", operating through three trustees all of Chinese nationality. The
donation was duly accepted by Yu Juan, of Chinese nationality, founder and
deaconess of the Temple, acting in representation and in behalf of the latter
and its trustees. The refusal of the Registrar was elevated en Consulta to the
IVth Branch of the Court of First Instance of Manila.
Upon finding out that the trustees of Ung Sui Si Temple were all
Chinese citizens, the Register of Deeds of Rizal refused to accept for record a
deed of donation by Filipino Jesus Dy, conveying a parcel of residential land
in favor of said unregistered religious organization.
Issue:
Whether a deed of donation of a parcel of land executed in favor of a

religious organization whose founder, trustees and administrator are Chinese
citizens should be registered or not.
Ruling:
NO. The Constitution makes no exception in favor of religious

associations. A deed of donation of a parcel of land executed by a Filipino
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citizen in favor of a religious organization, whose founder, trustees and

administrator are non-Filipinos, can not be admitted for registration.
The registration of the donation of land to an unincorporated religious

organization, whose trustees are foreigners, would violate the constitutional
prohibition and the refusal would not be in violation of the freedom of religion
clause. The fact that the appellant religious organization has no capital stock
does not suffice to escape the Constitutional inhibition, since it is admitted
that its members are of foreign nationality… the spirit of the Constitution
demands that in the absence of capital stock, the controlling membership
should be composed of Filipino citizens.
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PEOPLE OF THE PHILIPPINES vs. WILLIAM H. QUASHA

G.R. No. L-6055, June 12, 1953, REYES, J.
The Constitution does not prohibit the mere formation of a public utility
corporation without the required proportion of Filipino capital. What it does
prohibit is the granting of a franchise or other form of authorization for the
operation of a public utility to a corporation already in existence but without
the requisite proportion of Filipino capital.
Facts:
William H. Quasha, a member of the Philippine bar, committed a crime

of falsification of a public and commercial document for causing it to appear
that Arsenio Baylon, a Filipino citizen, had subscribed to and was the owner
of 60.005% of the subscribed capital stock of Pacific Airways Corp.
(Pacific) when in reality the money paid belongs to an American citizen whose
name did not appear in the Article of Incorporation to circumvent the
constitutional mandate that no corporation shall be authorized to operate as a
public utility in the Philippines unless 60% of its capital stock is owned by
Filipinos.
Under the Articles of Incorporation, the primary purpose of Pacific is

to carry on the business of a common carrier by air, land or water.
The lower court found Quasha guilty, and ruled that Baylon was a mere
trustee of the shares. Hence, this appeal.
Issue:
For a corporation to be entitled to operate a public utility, is it necessary

that it be organized with 60% of its capital owned by Filipinos from the start?
Held:
NO. For a corporation to be entitled to operate a public utility, it is not

necessary that it be organized with 60% of its capital owned by Filipinos from
the start. A corporation formed with capital that is entirely alien may
subsequently change the nationality of its capital through transfer of shares to
Filipino citizens. Conversely, a corporation originally formed with Filipino
capital may subsequently change the national status of said capital through
transfer of shares to foreigners.
What need is there then for a corporation that intends to operate a public
utility to have, at the time of its formation, 60% of its capital owned by
Filipinos alone? That condition may anytime be attained thru the necessary
transfer of stocks. The moment for determining whether a corporation is
entitled to operate as a public utility is when it applies for a franchise,
certificate, or any other form of authorization for that purpose. And that can
CORPORATION LAW
be done after the corporation has already come into being and not while it is
still being formed. And at that moment, the corporation must show that it has
complied not only with the requirement of the Constitution as to the
nationality of its capital, but also with the requirements of the Civil Aviation
Law if it is a common carrier by air, the Revised Administrative Code if it is
a common carrier by water, and the Public Service Law if it is a common
carrier by land or other kind of public service.
CORPORATION LAW
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G.

BIAZON v. HON. JESUS B. GARCIA, JR. and EDSA LRT
CORPORATION, LTD.
G.R. No. 114222, April 6, 1995, Quiason, J.
There is no prohibition against a foreign corporation to own facilities

used for a public utility.
Facts:
In 1989, the government planned to build a railway transit line along

EDSA. No bidding was made but certain corporations were invited to
prequalify. The only corporation to qualify was the EDSA LRT Consortium
which was obviously formed for this particular undertaking. An agreement
was then made between the government, through the Department of
Transportation and Communication (DOTC), and EDSA LRT Consortium.
The agreement was based on the Build-Operate-Transfer scheme provided for
by law (RA 6957, amended by RA 7718).
Under the agreement, EDSA LRT Consortium shall build the facilities,
i.e., railways, and shall supply the train cabs. Every phase that is completed
shall be turned over to the DOTC and the latter shall pay rent for the same for
25 years. By the end of 25 years, it was projected that the government shall
have fully paid EDSA LRT Consortium. Thereafter, EDSA LRT Consortium
shall sell the facilities to the government for $1.00.
However, Senators Francisco Tatad, John Osmeña, and Rodolfo Biazon

opposed the implementation of said agreement as they averred that EDSA
LRT Consortium is a foreign corporation as it was organized under Hongkong
laws; that as such, it cannot own a public utility such as the EDSA railway
transit because this falls under the nationalized areas of activities. The petition
was filed against Jesus Garcia, Jr. in his capacity as DOTC Secretary.
Issue:
Whether or not the petition shall prosper.
Held:
NO. The Supreme Court made a clarification. The SC ruled that EDSA
LRT Consortium, under the agreement, does not and will not become the
owner of a public utility hence, the question of its nationality is misplaced. It
is true that a foreign corporation cannot own a public utility but in this case
what EDSA LRT Consortium will be owning are the facilities that it will be
building for the EDSA railway project. There is no prohibition against a
foreign corporation to own facilities used for a public utility.
CORPORATION LAW
Further, it cannot be said that EDSA LRT Consortium will be the one
operating the public utility for it will be DOTC that will operate the railway
transit. DOTC will be the one exacting fees from the people for the use of the
railway and from the proceeds, it shall be paying the rent due to EDSA LRT
Consortium. All that EDSA LRT Consortium has to do is to build the facilities
and receive rent from the use thereof by the government for 25 years – it will
not operate the railway transit.
Although EDSA LRT Consortium is a corporation formed for the

purpose of building a public utility it does not automatically mean that it is
operating a public utility. The moment for determining the requisite Filipino
nationality is when the entity applies for a franchise, certificate or any other
form of authorization for that purpose.
CORPORATION LAW
PHILIPPINE LONG DISTANCE TELEPHONE CO. [PLDT] v.

NATIONAL TELECOMMUNICATIONS COMMISSION AND
CELLCOM, INC.
G.R. No. 88404, October 18, 1990, Melencio-Herrera, J.
Since stockholders own the shares of stock, they may dispose of the
same as they see fit. They may not, however, transfer or assign the property
of a corporation, like its franchise. In other words, even if the original
stockholders had transferred their shares to another group of shareholders,
the franchise granted to the corporation subsists as long as the corporation,
as an entity, continues to exist. The franchise is not thereby invalidated by the
transfer of the shares.
Facts:
On 22 June 1958, RA 2090 was enacted granting Felix Alberto & Co.
(later ETCI) a franchise to establish radio stations for domestic and
transoceanic telecommunications. On 13 May 1987, ETCI filed an application
with the NTC for the issuance of a certificate of public convenience and
necessity to operate, etc. a Cellular Mobile Telephone System and an alpha
numeric paging system in Metro Manila and in the Southern Luzon regions,
with a prayer for provisional authority to operate within Metro Manila. PLDT
filed an opposition with a motion to dismiss.
NTC overruled PLDT’s opposition and declared RA 2090 should be

liberally construed so as to include the operation of a cellular mobile telephone
service as part of services of the franchise. NTC granted ETCI provisional
authority to install, operate, and maintain a cellular mobile telephone service
initially in Metro Manila subject to the terms and conditions set forth in its
order, including an interconnection agreement to be entered with PLDT.
PLDT filed a motion to set aside order which was denied by the NTC.
PLDT challenged the NTC orders before the Supreme Court.
Issues:
1. Whether the provisional authority was properly granted.

2. Whether ETCI’s franchise includes operation of cellular mobile
telephone system (CMTS).
3. Whether or not PLDT’s petition should prosper.
Held:
1. YES. The provisional authority granted by the NTC (which is the

regulatory agency of the National Government over all
telecommunications entities) has a definite expiry period of 18 months
unless sooner renewed; may be revoked, amended or revised by the NTC;
covers one of four phases; limited to Metro Manila only; and does not
CORPORATION LAW
authorize the installation and operation of an alphanumeric paging system.

It was further issued after due hearing, with PLDT attending and granted
after a prima facie showing that ETCI had the necessary legal, financial
and technical capabilities; and that public interest, convenience and
necessity so demanded. Provisional authority would be meaningless if the
grantee were not allowed to operate, as its lifetime is limited and may be
revoked by the NTC at any time in accordance with law.
2. YES. The NTC construed the technical term “radiotelephony” liberally as

to include the operation of a cellular mobile telephone system. The
construction given by an administrative agency possessed of the necessary
special knowledge, expertise and experience and deserves great weight and
respect. It can only be set aside by judicial intervention on proof of gross
abuse of discretion, fraud or error of law.
3. NO. A franchise is a property right and cannot be revoked or forfeited

without due process of law. The determination of the right to the exercise
of a franchise, or whether the right to enjoy such privilege has been
forfeited by non-user, is more properly the subject of the prerogative writ
of quo warranto. Further, for any violation of the franchise, it should be
the government who should be filing a quo warranto proceeding because
it was the government who granted it in the first place.
The transfer of more than 40% of the shares of stocks is not

tantamount to a transfer of franchise. There is a distinction here. There is
no need to obtain authorization of Congress for the mere transfer of shares
of stocks. Shareholders can transfer their shares to anyone. The only
limitation is that if the transfer involves more than 40% of the corporation’s
stocks, it should be approved by the NTC. The transfer in this case was
shown to have been approved by the NTC. What requires authorization
from Congress is the transfer of franchise; and the person who shall obtain
the authorization is the grantee (ETCI). A distinction should be made
between shares of stock, which are owned by stockholders, the sale of
which requires only NTC approval, and the franchise itself which is owned
by the corporation as the grantee thereof, the sale or transfer of which
requires Congressional sanction. Since stockholders own the shares of
stock, they may dispose of the same as they see fit. They may not, however,
transfer or assign the property of a corporation, like its franchise. In other
words, even if the original stockholders had transferred their shares to
another group of shareholders, the franchise granted to the corporation
subsists as long as the corporation, as an entity, continues to exist. The
franchise is not thereby invalidated by the transfer of the shares. A
corporation has a personality separate and distinct from that of each
stockholder. It has the right of continuity or perpetual succession.
CORPORATION LAW
REYNALDO T. COMETA and STATE INVESTMENT TRUST,

INC. v. COURT OF APPEALS, HON.GEORGE MACLI-ING,
REYNALDO S. GUEVARA and HONEYCOMB BUILDERS, INC.
G.R. No. 124062, January 21, 1999, Mendoza, J.
It is true that a criminal case can only be filed against the officers of a
corporation and not against the corporation itself. It does not follow from this,
however, that the corporation cannot be a real-party-in-interest for bringing
a civil action for malicious prosecution.
Facts:
Reynaldo Cometa is the president of State Investment Trust, Inc. (SITI),

a lending firm. Reynaldo Guevara is the president of Honeycomb Builders,
Inc. (HBI), a real estate developer. Guevara is also the chairman of the board
of Guevent Industrial Development Corp., (GIDC).
GIDC took out a loan from SITI and secured the loan by mortgaging
some of its properties to SITI. GIDC defaulted in paying and so SITI
foreclosed the mortgaged assets. GIDC later sued SITI as it alleged that the
foreclosure was irregular. While the case was pending, the parties entered into
a compromise agreement where GIDC accepted HBI’s offer to purchase the
mortgaged assets. But SITI did not approve of said proposal.
GIDC then filed a request for clarification with the trial court and the
latter directed SITI to accept the proposal. Meanwhile, HBI filed a request
with the HLURB asking the latter to grant them the right to develop the
mortgaged assets. HBI submitted an affidavit allegedly signed by Cometa.
The affidavit purported that Cometa and SITI is not opposing HBI’s petition
with the HLURB.
Cometa assailed the affidavit as it was apparently forged as proven by

an NBI investigation. Subsequently, Cometa filed a criminal action for
falsification of public document against Guevara. The prosecutor initially did
not file the information as he finds no cause of action but the then DOJ
Secretary (Drilon) directed the fiscal to file an information against Guevara.
The case was dismissed. In turn, Guevara filed a civil case for malicious
prosecution against Cometa. Guevara, in his complaint, included HBI as a co-
plaintiff.
Issue:
Whether or not HBI is appropriately added as a co-plaintiff.
Held:
YES. It is true that a criminal case can only be filed against the officers
of a corporation and not against the corporation itself. But it does not follow
CORPORATION LAW
that the corporation cannot be a real-party-in-interest for the purpose of

bringing a civil action for malicious prosecution. As pointed out by the trial
judge, and as affirmed by the Court of Appeals, the allegation by Cometa that
Guevara has no cause of action with HBI not being a real party in interest is a
matter of defense which can only be decisively determined in a full-blown
trial.
CORPORATION LAW
FILIPINAS COMPAÑIA DE SEGUROS v. CHRISTERN,

HUENEFELD & CO., INC. G.R. No. L-2294, May 25, 1951
The nationality of a private corporation is determined by the character

or citizenship of its controlling stockholders. Where majority of the
stockholders of a corporation were German subjects, the corporation became
an enemy corporation upon the outbreak of the war between the United States
and Germany.
Facts:
Christern obtained from Filipinas a fire insurance policy of P1000,000,

covering merchandise contained in a building located at Binondo. During the
Japanese military occupation, the building and insured merchandise were
burned. The respondent its claim under the policy. The total loss suffered by
the respondent was fixed at P92,650.
The petitioner refused to pay the claim on the ground that the policy in
favor of the respondent had ceased to be in force on the date the U.S. declared
war on Germany with the respondent Corporation being controlled by German
subjects and the petitioner being a company under American jurisdiction
(though organized by Philippine laws) when the policy was issued on October
1, 1941. The petitioner, however, paid to the respondent the sum of P92,650
on April 19, 1943 under orders from the military government.
The insurer filed for a suit to recover the sum. The contention was that
the policy ceased to be effective because of the outbreak of the war and that
the payment made by the petitioner to the respondent corporation during the
Japanese military occupation was under pressure.
The tiral and the appellate courts dismissed the action. The Court of
Appeals claimed that a corporation is a citizen of the country or state by and
under the laws of which it was created or organized.
Hence this appeal.
Issue:
Whether the policy in question became null and void upon

the declaration of war.
Held:
YES. The majority of the stockholders of the respondent corporation

were German subjects. The respondent became an enemy corporation upon
the outbreak of the war. The control test has been adopted.
Measures of blocking foreign funds, the so called freezing regulations,

and other administrative practice in the treatment of foreign-owned property
CORPORATION LAW
in the United States allowed to large degree the determination of enemy

interest in domestic corporations and thus the application of the control test.
The property of all foreign interest was placed within the reach of the
vesting power (of the Alien Property Custodian) not to appropriate friendly or
neutral assets but to reach enemy interest which masqueraded under those
innocent fronts. The power of seizure and vesting was extended to all property
of any foreign country or national so that no innocent appearing device could
become a Trojan horse.
The Philippine Insurance Law states that “anyone except a public

enemy may be insured.” It stands to reason that an insurance policy ceases to
be allowable as soon as an insured becomes a public enemy. All individuals
therefore, who compose the belligerent powers, exist, as to each other, in a
state of utter exclusion, and are public enemies.
The respondent having become an enemy corporation on December 10,

1941, the insurance policy issued in its favor on October 1, 1941, by the
petitioner had ceased to be valid and enforceable, and since the insured goods
were burned after December 10, 1941, and during the war, the respondent was
not entitled to any indemnity under said policy from the petitioner. The
premium must be returned for the sake of justice.
CORPORATION LAW
PEDRO R. PALTING vs. SAN JOSE PETROLEUM INC.

G.R. No. L-14441, December 17, 1966, Barrera, J.
To what extent must the word "indirectly" be carried? Must we trace

the ownership or control of these various corporations ad infinitum for the
purpose of determining whether the Filipino ownership-control-requirement
is satisfied? The grandfather rule must only be applied upto a reasonable
level/extent.
Facts:
On September 7, 1956, San Jose Petroleum (SJP) filed with the

Philippine Securities and Exchange Commission (SEC) a sworn registration
statement, for the registration and licensing for sale in the Philippines Voting
Trust Certificates representing 2,000,000 shares of its capital stock of a par
value of $0.35 a share, at P1.00 per share.
It was alleged that the entire proceeds of the sale of said securities will
be devoted or used exclusively to finance the operations of San Jose Oil
Company, Inc. (Domestic Mining Oil Company). It was an express condition
of the sale that every purchaser of the securities shall not receive a stock
certificate, but a registered or bearer-voting-trust certificate from the voting
trustees James L. Buckley and Austin G.E. Taylor.
On June 20, 1958, SJP amended Statement increasing 2,000,000 to

5,000,000, at a reduced offering price of from P1.00 to P0.70 per share. Pedro
R. Palting together with other investors in the share of SJP filed with the SEC
an opposing the registration and licensing of the securities on the grounds that:
1. tie-up between the issuer, SJP, a Panamanian corp. and San Jose Oil
(SJO), a domestic corporation, violates the Constitution of the
Philippines, the Corporation Law and the Petroleum Act of 1949
2. issuer has not been licensed to transact business in the Philippines
3. sale of the shares of the issuer is fraudulent, and works or tends to work
a fraud upon Philippine purchasers
4. issuer as an enterprise, as well as its business, is based upon unsound
business principles
Issue:
Whether the “tie-up” violates the Constitution, the Corporation Law

and the Petroleum Act of 1949.
Held:
YES. The meat of the controversy is the "tie-up" between SAN JOSE
OIL on the one hand, and SAN JOSE PETROLEUM and its associates, on the
other. The relationship of these corporations involved or affected in this case
CORPORATION LAW
is admitted and established through the papers and documents which are parts
of the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the
outstanding capital stock of which is owned by SAN JOSE PETROLEUM, a
foreign (Panamanian) corporation, the majority interest of which is owned by
OIL INVESTMENTS, Inc., another foreign (Panamanian) company. This
latter corporation in turn is wholly (100%) owned by PANTEPEC OIL
COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A.,
both organized and existing under the laws of Venezuela.
As of September 30, 1956, there were 9,976 stockholders of

PANCOASTAL PETROLEUM found in 49 American states, holding
3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC
OIL COMPANY was said to have 3,077,916 shares held by 12,373
stockholders scattered in 49 American states.
In the two lists of stockholders, there is no indication of the citizenship

of these stockholders, or of the total number of authorized stocks of each
corporation, for the purpose of determining the corresponding percentage of
these listed stockholders in relation to the respective capital stock of said
corporation.
The privilege to utilize, exploit, and develop the natural resources of

this country was granted, by Article XIII of the Constitution, to Filipino
citizens or to corporations or associations 60% of the capital of which is
owned by such citizens. With the Parity Amendment to the Constitution, the
same right was extended to citizens of the United States and business
enterprises owned or controlled directly or indirectly, by citizens of the United
States.
There could be no serious doubt as to the meaning of the word

"citizens" used in the Constitution. The right was granted to 2 types of
persons: natural persons (Filipino or American citizens) and juridical persons
(corporations 60% of which capital is owned by Filipinos and business
enterprises owned or controlled directly or indirectly, by citizens of the United
States). In American law, "citizen" has been defined as "one who, under the
constitution and laws of the United States, has a right to vote for
representatives in congress and other public officers, and who is qualified to
fill offices in the gift of the people.
These concepts clarified, is SAN JOSE PETROLEUM an American

business enterprise entitled to parity rights in the Philippines? The answer
must be in the negative, for the following reasons:
1. It is not owned or controlled directly by citizens of the United States,

because it is owned and controlled by a corporation, the OIL
INVESTMENTS, another foreign (Panamanian) corporation.
2. Neither can it be said that it is indirectly owned and controlled by
American citizens through the OIL INVESTMENTS, for this latter
CORPORATION LAW
corporation is in turn owned and controlled, not by citizens of the

United States, but still by two foreign (Venezuelan) corporations,
the PANTEPEC OIL COMPANY and PANCOASTAL
PETROLEUM.
3. Although it is claimed that these two last corporations are owned
and controlled respectively by 12,373 and 9,979 stockholders
residing in the different American states, there is no showing in the
certification furnished by respondent that the stockholders of
PANCOASTAL or those of them holding the controlling stock, are
citizens of the United States.
4. Granting that these individual stockholders are American citizens, it
is yet necessary to establish that the different states of which they
are citizens, allow Filipino citizens or corporations or associations
owned or controlled by Filipino citizens, to engage in the
exploitation, etc. of the natural resources of these states. Respondent
has presented no proof to this effect.
But even if the requirements mentioned in the two immediately

preceding paragraphs are satisfied, nevertheless to hold that the set-up
disclosed in this case, with a long chain of intervening foreign corporations,
comes within the purview of the Parity Amendment regarding business
enterprises indirectly owned or controlled by citizens of the United States, is
to unduly stretch and strain the language and intent of the law.
For, to what extent must the word "indirectly" be carried? Must we trace
the ownership or control of these various corporations ad infinitum for the
purpose of determining whether the American ownership-control-requirement
is satisfied? Add to this the admitted fact that the shares of stock of the
PANTEPEC and PANCOASTAL which are allegedly owned or controlled
directly by citizens of the United States, are traded in the stock exchange in
New York, and you have a situation where it becomes a practical impossibility
to determine at any given time, the citizenship of the controlling stock
required by the law.
SAN JOSE PETROLEUM, as presently constituted, is not a business

enterprise that is authorized to exercise the parity privileges under the Parity
Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up
with SAN JOSE OIL is, consequently, illegal.
CORPORATION LAW
PART III
SEPARATE JURIDICAL PERSONALITY AND

DOCTRINE OF PIERCING VEIL OF
CORPORATE FICTION
64 DBP vs. National Labor Relations Commission
66 Francisco, et.al. vs. Mejia
68 Remo, Jr. vs. Intermediate Appellate Court
71 Asionics Philippines, Inc. vs. National Labor Relations Commission
75 Manila Hotel Corp. vs. National Labor Relations Commission
77 Francisco vs. Mejia
80 Laguio vs. National Labor Relations Commission
82 ARB Constructions Co., Inc. vs. Court of Appeals
84 Good Earth Emporium, Inc. vs. Court of Appeals
86 Gochan vs. Young
CORPORATION LAW
RUFINA LUY LIM vs. COURT OF APPEALS

G.R. No. 124715. January 24, 2000
May a corporation, in its universality, be the proper subject of and be

included in the inventory of the estate of a deceased person? Rudimentary is
the rule that a corporation is invested by law with a personality distinct and
separate from its stockholders or members. In the same vein, a corporation
by legal fiction and convenience is an entity shielded by protective mantle and
imbued with by law with a character alien to the persons comprising it.
Facts:
Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose
estate is the subject of probate proceedings.
Auto Truck Corporation, Alliance Marketing Corporation, Speed

Distributing Inc, Active Distributing Inc, and Action Company are
corporations formed, organized and existing under Philippine laws and which
owned real properties covered under the Torrens system.
On June 11, 1994, Pastor Y. Lim died intestate. Herein petitioner, as

surviving spouse and duly represented by her nephew, George Luy filed on
March 17, 1995, a joint petition for the administration of the estate of Pastor
Y. Lim before the RTC of Quezon City. Private respondents-corporations
whose properties were included in the inventory of the estate of Pastor Y. Lim,
then filed a motion for the lifting of lis pendens and motion for exclusion of
certain properties from the estate of the decedent.
Issue:
Whether or not the doctrine of piercing the veil of corporate entity is

applicable to be able to include in the probate proceedings the company
formed by deceased Pastor Y. Lim.
Held:
NO. It is settled that a corporation is clothed with personality separate

and distinct from that of the persons composing it. It may not generally be
held liable for that of the persons composing it. It may not be held liable for
the personal indebtedness of its stockholders or those of the entities connected
with it.
Rudimentary is the rule that a corporation is invested by law with a

personality distinct and separate from its stockholders or members. In the
same vein, a corporation by legal fiction and convenience is an entity shielded
by protective mantle and imbued with by law with a character alien to the
persons comprising it.
CORPORATION LAW
Piercing the veil of corporate entity requires the court to see through
the protective shroud which exempts its stockholders from liabilities that
ordinarily, they could subject to, or distinguishes one corporation from a
seemingly separate one, were it not for the existing corporate fiction.
The corporate mask may be lifted and the corporate veil may be pierced
when a corporation is just but the alter ego of a person or of another
corporation. Where badges of fraud exist, where public convenience is
defeated; where a wrong is sought to be justified thereby, the corporate fiction
or the notion of the legal entity should come to naught.
Further, the test in determining the applicability of the doctrine of

piercing the veil of corporate fiction is as follows:
1) Control, not merely the majority or complete stock control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time so separate
mind, will or existence of its own;
2) Such control must have been used by the defendant to commit
fraud on wrong to perpetuate the violation of a statutory or other
positive legal duty, on dishonest and unjust act in contravention
of plaintiffs legal right; and
3) The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of. The absence of any of
these elements prevent “piercing the corporate veil.”
Mere ownership by a single stockholder or by another corporation of

all or nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate personalities.
Moreover, to disregard the separate juridical personality of a

corporation, the wrong doing must be clearly and convincingly established, it
cannot be presumed.
CORPORATION LAW

G.R. No. 129459, September 29, 1998, Panganiban, J.
A corporate treasurer’s function have generally been described as “to

receive and keeps funds of the corporation, and to disburse them in
accordance with the authority given him by the board or the properly
authorized officers.” Unless duly authorized, a treasurer, whose power are
limited, cannot bind the corporation in a sale of its assets. Selling is obviously
foreign to a corporate treasurer’s function. When the corporation
categorically denies ever having authorized its treasurer to sell the subject
parcel of land, the buyer had the burden of proving that the treasurer was in
fact authorized to represent and bind the allegedly selling corporation in the
transaction. And failing to discharge such burden, and failing to show any
provision of the articles of incorporation, by-laws or board resolution to
prove that the treasurer possessed such power, the sale is void and not binding
on the alleged selling corporation.
Facts:
In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan)
alleged that it entered into a contract of sale with Motorich Sales Corporation
(Motorich) through the latter’s treasurer, Nenita Gruenberg. The subject of the
sale was a parcel of land owned by Motorich. San Juan advanced P100k to
Nenita as earnest money.
On the day agreed upon on which Nenita was supposed to deliver the
title of the land to Motorich, Nenita did not show up. Nenita and Motorich did
not heed the subsequent demand of San Juan to comply with the contract
hence San Juan sued Motorich. Motorich, in its defense, argued that it is not
bound by the acts of its treasurer, Nenita, since her act in contracting with San
Juan was not authorized by the corporate board.
San Juan raised the issue that Nenita was actually the wife of the
President of Motorich; that Nenita and her husband owns 98% of the
corporation’s capital stocks; that as such, it is a close corporation and that
makes Nenita and the President as principal stockholders who do not need any
authorization from the corporate board; that in this case, the corporate veil
may be properly pierced.
Issues:
Whether or not the corporation’s treasurer act can bind the corporation.
Is the doctrine of piercing the veil of corporate entity applicable?
CORPORATION LAW
Held:
NO. Such contract cannot bind Motorich, because it never authorized

or ratified such sale.
A corporation is a juridical person separate and distinct from its

stockholders or members. Accordingly, the property of the corporation is not
the property of the corporation is not the property of its stockholders or
members and may not be sold by the stockholders or members without express
authorization from the corporation’s board of directors.
Section 23 of BP 68 provides the Board of Directors or Trustees –

Unless otherwise provided in this code, the corporate powers of all
corporations formed under this code shall be exercised, all business
conducted, and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the stockholders of
stocks, or where there is no stock, from among the members of the
corporations, who shall hold office for 1 year and until their successors are
elected and qualified.
As a general rule, the acts of corporate officers within the scope of their
authority are binding on the corporation. But when these officers exceed their
authority, their actions, cannot bind the corporation, unless it has ratified such
acts as is estopped from disclaiming them.
Because Motorich had never given a written authorization to

respondent Gruenbeg to sell its parcel of land, we hold that the February 14,
1989 agreement entered into by the latter with petitioner is void under Article
1874 of the Civil Code. Being inexistent and void from the beginning, said
contract cannot be ratified.
The statutorily granted privilege of a corporate veil may be used only

for legitimate purposes. On equitable consideration,the veil can be
disregarded when it is utilized as a shield to commit fraud, illegality or
inequity, defeat public convenience; confuse legitimate issues; or serve as a
mere alter ego or business conduit of a person or an instrumentality, agency
or adjunct of another corporation.
We stress that the corporate fiction should be set aside when it becomes
a shield against liability for fraud, or an illegal act on inequity committed on
third person. The question of piercing the veil of corporate fiction is
essentially, then a matter of proof. In the present case, however, the court finds
no reason to pierce the corporate veil of respondent Motorich. Petitioner
utterly failed to establish the said corporation was formed, or that it is operated
for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud,
illegality or inequity at the expense of third persons like petitioner.
CORPORATION LAW
DEVELOPMENT BANK OF THE PHILIPPINES VS NATIONAL

LABOR RELATIONS COMMISSION
186 SCRA 8413 [GR NO. 86932 JUNE 27, 1990]
Ownership of a majority of capital stock and the fact that majority of

directors of a corporation are the directors of another corporation creates no
employer-employee relationship with the latter's employees
Facts:
Philippine Smelters Corporation (PSC), a corporation registered under

Philippine law, obtained a loan in 1983 from the Development Bank of the
Philippines (DBP), a government-owned financial institution created and
operated in accordance with Executive Order No. 81, to finance its iron
smelting and steel manufacturing business. To secure said loan, PSC
mortgaged to DBP real properties with all the buildings and improvements
thereon and chattels, with its president, Jose T. Marcelo Jr. as co-obligor. By
virtue of the said loan agreement, DBP became the majority stockholder of
PSC, with stock holdings in the amount of Php31,000,000 of the total
Php80,226,000 subscribed and paid up capital stock. Subsequently, it took
over the management of PSC. When PSC failed to pay its obligations with
DBP, which amounted to Php75,752,445.83 as of March 31, 1986, DBP
foreclosed and acquired the mortgaged real properties and chattels of PSC in
the auction sale held on February 25, 1987 and March 4, 1987. PSC’s
employees filed a petition against herein petitioner for the unpaid wages and
other benefits to which the labor arbiter ordered DBP to pay.
Issue:
Whether or not DBP, as foreclosing creditor can be held liable for the unpaid
wages, 13th moth pay, incentive leave pay, and separation pay of the
employees of PSC.
Held:
No. A preference of credit bestows upon the preferred creditor an

advantage of having his credit satisfied first ahead of other claims which may
be established against the debtor. Logically, it becomes material only when
the properties and assets of the debtors are insufficient to pay his debts in full;
for if the debtor is amply able to pay his various creditors, if full, how can the
necessity exist to determine which of his creditors shall be paid first or
whether they shall be paid out of the proceeds of the sale of the debtor’s
specific property? Indubitably, the preferential right of credit attains
significance only after the properties of the debtor have been inventoried and
liquidated, and the claims held by his various creditors have been established.
A distinction should be made between a preference of credit and a lien.

A preference applies only to claims which do not attach to specific properties.
CORPORATION LAW
A lien creates a charge on a particular property. The right of first preference

as regards unpaid wages recognized by article 110 does not constitute a lien
on the property of the insolvent debtor in favor of workers. It is but a
preference of credit in their favor, a preference in application. It is a method
adopted to determine and specify the order in which credits should be paid in
the final distribution of the proceeds of the insolvent’s assets. It is a right to a
preference in the discharge of funds of the judgement debtor.
Article 110 of the labor code does not purport to create a lien in favor
of workers or on employees for unpaid wages either upon all of the properties
or upon any particular property owned b their employer. Claims for unpaid
wages do not therefore fall within the category of specially preferred claims
established under articles 2241 and 2242 of the civil code, except to the extent
that such claims for unpaid wages are already covered by article 2241 number
6; claims for laborer’s wages, on the goods manufactured or the work done;
or by article 2242 number 3; claims of laborers and other workers engaged in
the construction, reconstruction or repair of buildings, canals and other works,
upon said buildings, canals or other works. To the extent that claims for
unpaid wages fall outside the scope of article 2241, number 6 and article 2242
number 3, they would come within the ambit of the category of ordinary
preferred credits under article 2244.
CORPORATION LAW
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT

CORPORATION vs. RITA C. MEJIA, as Executrix of Testate Estate of
ANDREA CORDOVA VDA. DE GUTIERREZ
G.R. No. 141617, August 14, 2001, Gonzaga-Reyes, J.
Time and again it has been reiterated that mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself sufficient ground for disregarding the separate
corporate personality.
Facts:
Adalia Francisco was the Treasurer of Cardale Financing and Realty

Corporation (Cardale). Cardale, through Francisco, contracted with Andrea
Gutierrez for the latter to execute a deed of sale over certain parcels of land in
favor of Cardale. It was agreed that Gutierrez shall hand over the titles to
Cardale but Cardale shall only give a downpayment, and later on full payment
in installment. As security, Gutierrez shall retain a lien over the properties by
way of mortgage. Nonetheless, Cardale defaulted in its payment. Gutierrez
then filed a petition with the trial court to have the Deed rescinded.
While the case was pending, Gutierrez died, and Rita Mejia, being the
executrix of the will of Gutierrez took over the affairs of the estate.
The case dragged on for 14 years because Francisco lost interest in

presenting evidence. And while the case was pending, Cardale failed to pay
real estate taxes over the properties in litigation hence, the local government
subjected said properties to an auction sale to satisfy the tax arrears. The
highest bidder in the auction sale was Merryland Development Corporation
(Merryland).
Apparently, Merryland is a corporation in which Francisco was the

President and majority stockholder. Mejia then sought to nullify the auction
sale on the ground that Francisco used the two corporations as dummies to
defraud the estate of Gutierrez especially so that these circumstances are
present:
1. Francisco did not inform the lower court that the properties were
delinquent in taxes;
2. That there was notice for an auction sale and Francisco did not
inform the Gutierrez estate and as such, the estate was not able to
perform appropriate acts to remedy the same;
3. That without knowledge of the auction, the Gutierrez estate cannot
exercise their right of redemption;
4. That Francisco failed to inform the court that the highest bidder in
the auction sale was Merryland, her other company;
5. That thereafter, Cardale was dissolved and the subject properties
were divided and sold to other people.
CORPORATION LAW
Issue:
Whether or not Merryland and Francisco shall be held solidarily liable.
Held:
NO. Only Francisco shall be held liable to pay the indebtedness to the
Gutierrez estate. What was only proven was that Francisco defrauded the
Gutierrez estate as clearly shown by the dubious circumstances which caused
the encumbered properties to be auctioned. By not disclosing the tax
delinquency, Francisco left Gutierrez in the dark. She obviously acted in bad
faith. Francisco’s elaborate act of defaulting payment, disregarding the case,
not paying realty taxes (since as treasurer of Cardale, she’s responsible for
paying the real estate taxes for Cardale), and failure to advise Gutierrez of the
tax delinquencies all constitute bad faith. The attendant fraud and bad faith on
the part of Francisco necessitates the piercing of the veil of corporate fiction
in so far as Cardale and Francisco are concerned. Cardale and Francisco
cannot escape liability now that Cardale has been dissolved. Francisco shall
then pay Guttierez estate the outstanding balance with interest.
As regards Merryland however, there was no proof that it is merely an

alter ego or a business conduit of Francisco. Merryland merely bought the
properties from the auction sale and such per se is not a wrongful act or a
fraudulent act. Time and again it has been reiterated that mere ownership by
a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality. Hence, Merryland can’t be held solidarily
liable with Francisco.
CORPORATION LAW
JOSE REMO, JR. vs. THE HON. INTERMEDIATE APPELLATE

COURT and E.B. MARCHA TRANSPORT COMPANY, INC.
G.R. No. L-67626, April 18, 1989, Gancayco, J.
The corporate fiction or the notion of legal entity may be disregarded

when it "is used to defeat public convenience, justify wrong, protect fraud, or
defend crime" in which instances "the law will regard the corporation as an
association of persons, or in case of two corporations, will merge them into
one." The corporate fiction may also be disregarded when it is the "mere alter
ego or business conduit of a person."
Facts:
In December of 1977, the BOD of Akron Customs Brokerage

Corporation (Akron), composed of Jose Remo, Jr., Ernesto Bañares, Feliciano
Coprada, Jemina Coprada, and Dario Punzalan with Lucia Lacaste as
Secretary, adopted a resolution authorizing the purchase of 13 trucks for use
in its business to be paid out of a loan the corporation may secure from any
lending institution.
On January 25, 1978, Feliciano Coprada, as President and Chairman of

Akron, purchased the trucks from E.B. Marcha Transport Company, Inc.
(Marcha) for P525,000 as evidenced by a deed of absolute sale.
The parties agreed on a downpayment in the amount of P50,000 and

that the balance of P475,000 shall be paid within 60 days from the date of the
execution of the agreement.
They also agreed that until balance is fully paid, the down payment of
P 50,000 shall accrue as rentals and failure to pay the balance within 60 days,
then the balance shall constitute as a chattel mortgage lien covering the cargo
trucks and the parties may allow an extension of 30 days and Marcha may ask
for a revocation of the contract and the reconveyance of all trucks.
The obligation is further secured by a promissory note executed by

Coprada in favor of Akron. It is stated that the balance shall be paid from the
proceeds of a loan obtained from the Development Bank of the Philippines
(DBP) within 60 days.
After the lapse of 90 days, Marsha tried to collect from Coprada but the
Coprada promised to pay only upon the release of the DBP loan. Coprada
reiterated that he was applying for a loan from the DBP from the proceeds of
which payment of the obligation shall be made.
Meanwhile, 2 of the trucks were sold under a pacto de retro sale to a

Mr. Bais of the Perpetual Loans and Savings Bank at Baclaran. On March 15,
1978, the sale was authorized by board resolution.
CORPORATION LAW
Marsha found that no loan application was ever filed by Akron with
DBP. Akron paid rentals of P 500/day pursuant to a subsequent agreement,
from April 27, 1978 (the end of the 90-days to pay the balance) to May 31,
1978. Thereafter, no more rental payments were made.
Coprada wrote Marsha begging for a grace period of until the end of
the month to pay the balance of the purchase price; that he will update the
rentals within the week; and in case he fails, then he will return the 13 units
should Marsha elect.
Marsha through counsel, wrote Akron demanding the return of the 13

trucks and the payment of P 25K back rentals from June 1 to August 1, 1978.
Coprada asked for another grace period of to pay the balance, stating as
well that he is expecting the approval of his loan application from a financing
company, and that 10 trucks have been returned to Bagbag, Novaliches.
On December 9, 1978: Coprada informed Marsha that he had returned

10 trucks to Bagbag and that a resolution was passed by the board of directors
confirming the deed of assignment to Marsha of P 475K from the proceeds of
a loan obtained by Akron from the State Investment House, Inc.
In due time, Marsha filed a compliant for the recovery of P 525K or the
return of the 13 trucks with damages against Akron and its officers and
directors
Remo Jr. sold all his shares in Akron to Coprada. It also appears that
Akron amended its articles of incorporation thereby changing its name to
Akron Transport International, Inc. which assumed the liability of Akron to
Marsha.
Issue:
Whether or not Remo Jr. should be held personally liable together

with Akron Transport International, Inc.
Held:
NO. The environmental facts of this case show that there is no cogent
basis to pierce the corporate veil of Akron and hold petitioner personally
liable.
While it is true that in December, 1977 petitioner was still a member of

the board of directors of Akron and that he participated in the adoption of a
resolution authorizing the purchase of 13 trucks for the use in the brokerage
business of Akron to be paid out of a loan to be secured from a lending
institution, it does not appear that said resolution was intended to defraud
anyone.
CORPORATION LAW
It was Coprada, President and Chairman of Akron, who negotiated. The

word "WE' in the said promissory note must refer to the corporation which
Coprada represented in the execution of the note and not its stockholders or
directors. Petitioner did not sign the said promissory note, so he cannot be
personally bound thereby.
As to the sale through pacto de retro of the two units to a third person
by the corporation by virtue of a board resolution, Remo Jr. asserts that he
never signed the resolution. Be that as it may, the sale is not inherently
fraudulent as the 13 units were sold through a deed of absolute sale to Akron
so that the corporation is free to dispose of the same. Of course, it was
stipulated that in case of default, a chattel mortgage lien shall be constituted
on the 13 units.
The new corporation confirmed and assumed the obligation of the old
corporation. There is no indication of an attempt on the part of Akron to evade
payment of its obligation. It is his inherent right as a stockholder to dispose of
his shares of stock anytime he so desires.
Fraud must be established by clear and convincing evidence. If at all,

the principal character on whom fault should be attributed is Feliciano
Coprada, the President of Akron.
CORPORATION LAW
ASIONICS PHILIPPINES vs. NATIONAL LABOR RELATIONS

COMMISSION
G.R No. 124950, 19 MAY 1998,

all or nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality. In order for
corporate officers to be made personally liable, there must be a showing that
there was bad faith or malice.
Facts:
Asionics PHL Inc (API) was a corporation engaged in the assembly of

computer chips. Frank Yih was the President and a majority stockholder in
API. Because of a deadlock strike involving FFW (an employee union), API
lost several accounts, which led to the retrenchment of several workers. These
retrenched workers filed a case of illegal dismissal against API and Frank Yi
before the NLRC, claiming that they had been terminated due to their
participation in union activities.
The NLRC ruled in favor of the workers, and held Frank Yih jointly
and solidarily liable with API for the payment of separation pay on the ground
that he was API’s President and a majority stockholder in the corporation. On
appeal, API and Yih argue that the employees’ termination were caused by a
shortage of work, and not of union-busting.
Issue:
Whether or not a stockholder/director/officer of a corporation can be

held liable for the corporation’s liabilities absent any finding of fraud? NO
Ruling:
Doctrine of legal entity

A corporation is a juridical entity with legal personality separate and
distinct from those acting for and in its behalf and, in general, from the people
comprising it. The rule is that obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole liabilities. Mere
ownership by a single stockholder or by another corporation of all or nearly
all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.
Corporate officers may be held liable for corporate obligations when the
corporate veil is “disregarded”
Nevertheless, being a mere fiction of law, peculiar situations or valid
grounds can exist to warrant, albeit done sparingly, the disregard of its
independent being and the lifting of the corporate veil. As a rule, this situation
might arise when a corporation is used to evade a just and due obligation or
CORPORATION LAW
to justify a wrong, to shield or perpetrate fraud, to carry out similar

unjustifiable aims or intentions, or as a subterfuge to commit injustice and so
circumvent the law.
Examples of when corporate veil pierced: Under the Minimum Wage

Law, the responsible officer of an employer corporation could be held
personally liable for nonpayment of backwages. Otherwise, the corporation
employer (would) have devious ways for evading payment of backwages." In
the absence of a clear identification of the officer directly responsible for
failure to pay the backwages, a President of the corporation may be held liable
(AC Ransom v NLRC) or even a Vice-President (Chua v NLRC).
The SC held that there was nothing on record to indicate that Frank Yih
acted in bad faith or with malice in carrying out the retrenchment
program of the company, and thus his being held solidarily liable with
API was legally unjustified.
CORPORATION LAW
RUFINA LUY LIM petitioner, vs. COURT OF APPEALS, AUTO

TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC.,
ACTIVE DISTRIBUTORS, ALLIANCE MARKETING
CORPORATION, ACTION COMPANY, INC. respondents.
G.R. No. 124715. January 24, 2000. BUENA, J.:
Rudimentary is the rule that a corporation is invested by law with a

personality distinct and separate from its stockholders or members—by legal
fiction and convenience it is shielded by a protective mantel and imbued by
law with a character alien to the persons comprising it.
Facts:
Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y.
Lim whose estate is the subject of probate proceedings. Private respondents
Distributing, Inc., Active Distributing, Inc. and Action Company are
On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as

surviving spouse and duly represented by her nephew George Luy, a joint
petition for the administration of the estate of Pastor Y. Lim before the
Regional Trial Court of Quezon City. Private respondent corporations, whose
properties were included in the inventory of the estate of Pastor Y. Lim, then
filed a motion for the lifting of lis pendens and motion for exclusion of certain
properties from the estate of the decedent. The RTC granted the private
respondents twin motions.
Subsequently, Rufina Luy Lim filed a verified amended petition,

raising the issue that not only the properties of private respondent corporations
are properly part of the decedents estate but also the private respondent
corporations themselves because it was late Pastor Y. Lim during his lifetime,
organized and wholly-owned the five corporations. In addition, petitioner
attached the petition for review affidavits executed by Teresa Lim and Lani
Wenceslao which among others, contained averments that the late Pastor Y.
Lim during his organized and owned the five corporations and the other
“incorporators” of the said Corporations had no actual participation in the
organization and incorporation of the said corporation. In short, they were just
dummies of the corporation. The RTC set aside its previous ruling and
directed to reinstate the annotation of lis pendens.
On 04 September 1995, the probate court appointed Rufina Lim as

special administrator. Private respondent filed a special civil action for
certiorari, with an urgent prayer for a restraining order or writ of preliminary
injunction, before the Court of Appeals questioning the orders of the Regional
Trial Court, sitting as a probate court. The CA, rendered a decision in favor of
CORPORATION LAW
herein private respondents. Aggrieved, Lim filed a petition for review on

certiorari.
Issue:
Whether or not a corporation can be a proper subject of and be included

in the inventory of the estate of a deceased person.
Ruling:
No. It is settled that a corporation is clothed with personality separate

with it. Nonetheless, the shield is not at all times invincible. The corporate
mask may be lifted and the corporate veil may be pierced when a corporation
is just but the alter ego of a person or of another corporation. Where badges
of fraud exist, where public convenience is defeated; where a wrong is sought
to be justified thereby, the corporate fiction or the notion of legal entity should
come to naught. Moreover, to disregard the separate juridical personality of a
corporation, the wrong-doing must be clearly and convincingly established. It
cannot be presumed.
In the present case, petitioner nonetheless failed to adduce competent

evidence that would have justified the court to impale the veil of corporate
fiction. Truly, the reliance reposed by petitioner on the affidavits executed by
Teresa Lim and Lani Wenceslao is unavailing considering that the
aforementioned documents possess no weighty probative value pursuant to
the hearsay rule. Besides it is imperative for us to stress that such affidavits
are inadmissible in evidence inasmuch as the affiants were not at all presented
during the course of the proceedings in the lower court. WHEREFORE, in
view of the foregoing disquisitions, the instant petition is hereby DISMISSED
for lack of merit and the decision of the Court of Appeals which nullified and
set aside the orders issued by the Regional Trial Court, Branch 93, acting as a
probate court, dated 04 July 1995 and 12 September 1995 is AFFIRMED.
CORPORATION LAW
MANILA HOTEL CORP. v NLRC

G.R No. 120077, OCTOBER 13, 2000, 1st DIVISION, PARDO, J:

all or nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality.
Facts:
Manila Hotel Corp. (MHC) was a GOCC organized under Philippine

law, and an incorporator of Manila Hotel International Company, Limited
(MHICL), which is a corporation organized under Hong Kong laws. Under a
management agreement, MHICL trained the staff of the Palace Hotel in
Beijing.
In 1988, the Palace Hotel management sought to recruit a Filipino

named Marcelo Santos, who was then working in Oman. Santos then resigned
from his employment in Oman and started work in the Palace Hotel in China.
Subsequently, Santos signed an amended employment contract with the
Palace Hotel. This amended contract was signed by the VP of MHICL under
the word “noted.” One year later, Santos received notice of his termination
from employment due to retrenchment, owing to the political upheaval in
China.
Santos then filed a complaint for illegal dismissal with the NLRC,
impleading the Palace Hotel, the Palace Hotel’s general manager, MHICL and
its incorporator, MHC. The NLRC ruled in favor of Santos, holding the
respondents liable to pay unpaid salaries and damages.
Issue:
Whether or not a Filipino corporation, which is an incorporator in a

foreign corporation, may be held liable for said corporation’s obligations.
Ruling:
No. The SC noted that the aspects of the case happened in 2 foreign
jurisdictions. The only link to the Philippines was that the private respondent
was a Filipino citizen. The SC ruled against Santos and the NLRC, holding
that the NLRC had no power to determine or adjudicate the law governing an
employment contract perfected in foreign soil (in Oman).
Even if MHICL was held liable for retrenchment, MHC may not be held liable
for its liabilities
True, MHC is an incorporator of MHICL and owns fifty percent (50%)

of its capital stock. However, this is not enough to pierce the veil of corporate
fiction between MHICL and MHC. Piercing the veil of corporate entity is an
equitable remedy. It is resorted to when the corporate fiction is used to defeat
CORPORATION LAW
public convenience, justify wrong, protect fraud or defend a crime. It is done

only when a corporation is a mere alter ego or business conduit of a person or
another corporation. [The Court reiterated the test for applicability of the
doctrine as cited in Lim v CA]
It is basic that a corporation has a personality separate and distinct from

those composing it as well as from that of any other legal entity to which it
may be related. Clear and convincing evidence is needed to pierce the veil of
corporate fiction. In this case, there was no evidence to show that MHICL and
MHC are one and the same entity.
CORPORATION LAW
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT

CORPORATION vs. RITA C. MEJIA, as Executrix of ANDREA
CORDOVA VDA. DE GUTIERREZ
G.R No. 141617, AUGUST 14 2001, GONZAGA-REYES, J:
Absent any showing that [a corporation] was purposely used as a shield

to defraud creditors and third persons of their rights, its separate juridical
personality must be upheld.
Facts:
Gutierrez is the owner of a parcel of land known as the Tala Estate. In

1964, Gutierrez executed a Deed of Sale over the lots in favor of Cardale
Financing and Realty Corp. (Cardale). To secure the payment of the lots,
Cardale constituted a mortgage over the lots; and new titles were issued in
favor of Cardale. Cardale failed to pay the agreed upon price, so in 1968,
Gutierrez filed a case for rescission.
During the pendency of the rescission case, Gutierrez died and was
subsittuted by Mejia. Cardale Realty at this point represented by its
VP/Treasurer Fransisco, lost interest in the case. The case was inactive for 14
years. During this time the property became delinquient in the payment of
taxes, so that in 1983 several lots were sold in a delinquency sale. The highest
bidders in this sale was Merryland Corp. Fransisco (VP/Treasurer of Cardale
in the rescission case) is the President and majority stockholder of Merryland.
Eventually, Fransisco (acting through both Cardale and Merryland)

managed to have new titles to the lots (which were still the subject of the
rescission case) issued to Merryland with the added bonus of having the
properties free from all liens and encumberances. The trial court at the
instance of Merryland/Fransisco also dismissed the rescission case, holding
that the delinquency sale had rendered the case moot and academic, and that
since the properties mortgaged to Cardale had been transferred to Merryland
which was not a party to the case for rescission, it would be more appropriate
for the parties to resolve their controversy in another action.
Mejia as executrix filed a case for damages, alleging that Fransisco

controlled both Cardale and Merryland Corp; and had employed fraud by
causing Cardale to default on the taxes so that Merryland can purchase the
properties at the delinquency sale. The lower court ruled against her, but was
reveresed by the CA, holding that the corporate veil of Cardale and Merryland
must be pierced in order to hold Francisco and Merryland solidarily liable
since these two corporations were used as dummies by Francisco. The CA
held Merryland solidarily liable with Fransisco.
Abridged version of facts: A entered into a contract of sale with X Corp

over a parcel of land, secured by mortgage. X Corp defaulted, A instituted a
case for rescission, where she was eventually substituted by B. During the the
CORPORATION LAW
pendency of the rescission case, X Corp defaulted in the payment of real

property taxes. The lots were then sold to Y Corp in a delinquency sale. Z is
an officer in both X Corp and Y Corp. Z, through legal manueverings
managed to get the rescission case dismissed and had clean titles issued in
favor Y Corp. In a case for damages by B against Z, the CA held that Z had
employed fraud through X Corp and Y Corp.
Issue:
Whether or not the piercing of the corporate veil was proper in this case.
Ruling:
NO.
The corporation’s separate and distinct personality
It is dicta in corporation law that a corporation is a juridical person with

a separate and distinct personality from mat of the stockholders or members
who compose it. However, when the legal fiction of the separate corporate
personality is abused, such as when the same is used for fraudulent or
wrongful ends, the courts have not hesitated to pierce the corporate veil.
The doctrine of piercing the veil of corporate entity
Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or stockholders
may be disregarded. In such cases, the corporation will be considered as a
mere association of persons. The members or stockholders of the corporation
will be considered as the corporation, that is, liability will attach directly to
the officers and stockholders. The doctrine applies when the corporate fiction
is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, or when it is made as a shield to confuse the legitimate issues, or where
a corporation is the merealter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.
General rule: officers cannot be held personally liable with the corporation,
whether civilly or otherwise if he acted in good faith
With specific regard to corporate officers, the general rule is that the
officer cannot be held personally liable with the corporation, whether civilly
or otherwise, for the consequences of his acts, if he acted for and in behalf of
the corporation, within the scope of his authority and in good faith. In
such cases, the officer's acts are properly attributed to the corporation.
CORPORATION LAW
However, if it is proven that the officer has used the corporate fiction
to defraud a third party, or that he has acted negligently, maliciously or in bad
faith, then the corporate veil shall be lifted and he shall be held personally
liable for the particular corporate obligation involved.
Fransisco employed fraud and acted in bad faith

The totality of the circumstances lead to the conclusion that Fransisco
acted in bad faith. Cardale failed to balance of the purchase price, and Cardale
through its acts delayed the case for 14 years. After the delinquency sale,
Cardale did not exercise its right to redeem. Only after the redemption period
had lapsed did Fransisco inform the Courts of the delinquency sale, nor that
ithe properties had been acquired by Merryland.
Consequently, Francisco had effectively deprived the estate of
Gutierrez of its rights as mortgagee over the three parcels of land which were
sold to Cardale.
Liabilities of the parties: Merryland Corp free from liability

The SC said that it was incorrect to hold Merryland Corp. solidarily
liable with Fransisco. The only act imputable to Merryland in relation to the
mortgaged properties is that it purchased the same and this by itself is not a
fraudulent or wrongful act. No evidence has been adduced to establish that
Merryland was a mere alter ego or business conduit of Francisco.
Time and again it has been reiterated that mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself sufficient ground for disregarding the separate
corporate personality. Neither has it been alleged or proven that Merryland is
so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of Cardale. Even
assuming that the businesses of Cardale and Merryland are interrelated, this
alone is not justification for disregarding their separate personalities, absent
any showing that Merryland was purposely used as a shield to defraud
creditors and third persons of their rights. Thus, Merryland's separate juridical
personality must be upheld.
The SC held Fransisco solidarily liable for all damages.
CORPORATION LAW
SOL LAGUIO, RENE LAOLAO, and et al., petitioners, vs.

NATIONAL LABOR RELATIONS COMMISSION, WELL WORLD
TOYS, INC., APRIL TOYS, INC., YU SHENG LING, JENN L.
WANG, EUCLIFF CHENG, CHI SHENG LIN, NENITA C.
AGUIRRE, MA. THERESA R. CADIENTE and GLICERIA R.
AGUIRRE, respondents.
G.R. No. 108936. October 4, 1996. FRANCISCO, J.:
Mere substantial identity of the incorporators of the two corporations

does not necessarily imply fraud, nor warrant the piercing of the veil of
corporate fiction. In the absence of clear and convincing evidence to show
that the corporate personalities were used to perpetuate fraud, or circumvent
the law, the corporations are to be rightly treated as distinct and separate
from each other.
Facts:
Private respondent April Toy, Inc. (April for brevity) is a domestic

corporation incorporated on January 6, 1989, for the purpose of
“manufacturing, importing, exporting, buying, selling, sub-contracting or
otherwise dealing in, at wholesale and retail, stuffed toys, with principal place
of business at Parañaque, Manila. On December 20, 1989, or after almost a
year of operation, April posted a memorandum within its premises and
circulated a copy of the same among its employees informing them of its dire
financial condition. To avert further business reverses, April decided to
shorten its corporate term “up to February 28, 1990 ,” submitted a notice of
dissolution to the Securities and Exchange Commission and published the
same in a newspaper of general circulation. April also notified its employees,
the Department of Labor and Employment, the Social Security System, the
Board of Investments, the Bureau of Internal Revenue, and the Municipality
of Parañaque of its dissolution.
In view of April’s cessation of operations, petitioners who initially

composed of seventy-seven employees below filed a complaint for “illegal
shutdown/retrenchment/dismissal and unfair labor practice.” On June 21,
1990, petitioners amended their complaint to implead private respondent
private respondent Well World Toys, Inc. (Well World for brevity), a
corporation also engaged in the manufacture of stuffed toys for export with
principal office located at Las Piñas, Manila. In their complaint, petitioners
basically alleged that they were original probationary employees of Well
World but were later laid off in 1989 “for starting to organize themselves into
a union”. They applied with and were thereafter hired by April.
The closure, petitioners declared, is April’s clever ploy to “defeat their

right to self organization”. Petitioners further alleged that the original
incorporators and principal officers of April were likewise the original
incorporators of Well World, thus both corporations should be treated as one
corporation liable for their claims. Labor Arbiter found as valid the closure of
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April, and treated April and Well World as two distinct corporations.
Petitioners appealed before the National Labor Relations Commission
(NLRC), but to no avail. Hence, this petition, supported by the Office of the
Solicitor General, anchored solely on the NLRC’s purported grave abuse of
discretion in not finding April and Well World as one corporation liable for
their grievances.
Issue:
Whether or not April and Well World are one and the same corporation
liable for the claims.
Ruling:
No. The two corporations have two different set of officers managing
their respective affairs in two separate offices. It is basic that a corporation is
invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it
may be related. Mere substantial identity of the incorporators of the two
corporations does not necessarily imply fraud, nor warrant the piercing of the
veil of corporation fiction. In the absence of clear and convincing evidence
that April and Well World’s corporate personalities were used to perpetuate
fraud, or circumvent the law said corporations were rightly treated as distinct
and separate from each other. ACCORDINGLY, finding no grave abuse of
discretion on the part of respondent NLRC in rendering the assailed
resolution, the instant petition is hereby DISMISSED for lack of merit.
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ARB CONSTRUCTION CO., INC., and MARK MOLINA, petitioners,

vs. COURT OF APPEALS, TBS SECURITY AND INVESTIGATION
AGENCY represented by CECILIA R. BACLAY, respondents.
G.R. No. 126554. May 31, 2000 BELLOSILLO, J.:
As a general rule, a corporation may not be made to answer for acts or

liabilities of its stockholders or those of the legal entities which it may be
connected and vice-versa
Facts:
TBS Security and Investigation Agency (TBSS) entered into two

Service Contracts with ARBC wherein TBSS agreed to provide and post
security guards in the five establishments being maintained by ARBC. This
contract shall be effective for a period of one year and shall be considered
automatically renewed for the same period unless otherwise a written notice
of termination shall have been given by one party to the other party thirty days
in advance. In a letter ARBC informed TBSS of its desire to terminate the
Service Contracts. ARBC through its Vice President for Operations, Mark
Molina, informed TBSS that it was replacing its security guards with those of
Global Security Investigation Agency (GSIA). TBSS informed ARBC that the
latter could not preterminate the Service Contracts nor could it post security
guards from GSIA as it would run counter to the provisions of their Service
Contracts.
TBSS filed a Complaint for Preliminary Injunction against ARBC and

GSIA. In Answer, ARBC claimed that it decreased the number of security
guards being posted at its establishments to only one as the security guards
assigned by TBSS were found to be grossly negligent and inefficient, citing
the some incidents of it. TBSS alleged in its Amended and Supplemental
Complaint that ARBC, thru Molina illegally deducted from the payroll an
amount representing the value of one unit concrete vibrator and cassette
recorder. It further argued that ARBC withheld additional amounts from its
payroll as payment for the parts of the grader that were stolen.
Issue:
Whether or not the complaint is sufficient to hold Molina liable in his

personal capacity
Ruling:
No. The general rule is that officers of a corporation are not personally
liable for their official acts unless it is shown that they have exceeded their
authority. On the basis hereof, petitioner Molina could not be held jointly and
severally liable for any obligation which petitioner ARBC may be held
accountable for, absent any proof of bad faith or malice on his part.
Corollarily, it is also incorrect on the part of the Court of Appeals to conclude
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that there was a sufficient cause of action against Molina as to make him
personally liable for his actuations as Vice President for Operations of ARBC.
A cursory reading of the records of the instant case would reveal that Molina
did not summarily withhold certain amounts from the payroll of TBSS.
Instead, he enumerated instances which in his view were enough bases to do
so.
WHEREFORE, the PETITION is PARTIALLY GRANTED. The

assailed Decision of the Court of Appeals in CA-G.R. SP No. 36489 affirming
the 9 December 1994 Order of the Regional Trial Court-Br. 59, Makati City,
which denied the Motion to Dismiss of petitioner Mark Molina is
REVERSED and SET ASIDE. However, the assailed Decision of the
appellate court in CA-G.R. SP No. 36330 affirming the 9 September 1994
Order of the Regional Trial Court-Br. 59, Makati City, granting TBS Security
and Investigation Agency's Motion for Leave to File Amended and
Supplemental Complaint is likewise AFFIRMED. The case is remanded to
the trial court for further proceedings.
CORPORATION LAW
GOOD EARTH EMPORIUM v CA

G.R No. 82797, FEBRUARY 27, 1991, PARAS, J:
A corporation has a personality distinct and separate from its

individual stockholders or members. Being an officer or stockholder of a
corporation does not make one's property also of the corporation, and vice-
versa, for they are separate entities.
Facts:
Good Earth Emporium Inc (GEE) was the lessee of Roces-Reyes Realty
(RRR), who filed an ejectment suit when GEE defaulted in the payment of
rentals. The suit was adjudged in favor of RRR, ordering GEE to pay the
judgment obligation of 2m, and eventually a writ of execution was issued by
the lower court.
GEE subsequently moved to quash the writ, on the ground that they had
already paid the judgment debt. Apparently GEE presented two receipts:
1. the delivery of 1m to the Roces brothers (owners of RRR), and

2. 1m evidenced by a pacto de retro instrument in favor of the same Roces
brothers
On these evidence, the lower courts quashed the writ of execution.
Issue:
Whether or not the payments made by GEE to the Roces brothers fully
satisfied their judgment debt in favor of RRR.
Ruling:
No. A corporation has a personality distinct and separate from its

individual stockholders or members. Being an officer or stockholder of a
corporation does not make one's property also of the corporation, and vice-
versa, for they are separate entities. Shareowners are in no legal sense the
owners of corporate property (or credits) which is owned by the corporation
as a distinct legal person. As a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or
credit of the stockholder, nor is the stockholder's debt or credit that of the
corporation.
In the case at bar, the supposed payments were not made to Roces-
Reyes Realty, Inc. or to its successor in interest nor is there positive evidence
that the payment was made to a person authorized to receive it. (Article 1240,
Civil Code)
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The payments were made to the Roces brothers in their personal

capacity, and such payments were not receipted for by RRR. Furthermore,
there was no indication in the receipts that the said payments was in
satisfaction of the judgment debt.
CORPORATION LAW
VIRGINIA O. GOCHAN, FELIX Y. GOCHAN III, and et al..,

petitioners, vs. RICHARD G. YOUNG, DAVID G. YOUNG, and et al..,
G.R. No. 131889. March 12, 2001. PANGANIBAN, J.:
The notion of corporate entity will be pierced or disregarded and the

individuals composing it will be treated as identical if, as alleged in the
present case, the corporate entity is being used as a cloak or cover for fraud
or illegality; as a justification for a wrong; or as an alter ego, an adjunct, or
a business conduit for the sole benefit of the stockholders.
Facts:
Felix Gochan and Sons Realty Corporation (Gochan Realty) was

registered with the SEC on June 1951, with Felix Gochan, Sr., Maria Pan Nuy
Go Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and Crispo
Gochan as its incorporators. Felix Gochan Sr.'s daughter, Alice inherited 50
shares of stock in Gochan Realty from the former. Alice died in 1955, leaving
the 50 shares to her husband, John Young, Sr. In 1962, the Regional Trial
Court of Cebu adjudicated 6/14 of these shares to her children, Richard
Young, David Young, Jane Young Llaban, John Young Jr., Mary Young Hsu
and Alexander Thomas Young (the Youngs). Having earned dividends, these
stocks numbered 179 by 20 September 1979. 5 days later (25 September), at
which time all the children had reached the age of majority, their father John
Sr., requested Gochan Realty to partition the shares of his late wife by
cancelling the stock certificates in his name and issuing in lieu thereof, new
stock certificates in the names of the Youngs. On 17 October 1979, Gochan
Realty refused, citing as reason, the right of first refusal granted to the
remaining stockholders by the Articles of Incorporation. In 1990, John, Sr.
died, leaving the shares to the Youngs. On 8 February 1994, Cecilia Gochan
Uy and Miguel Uy filed a complaint with the SEC for issuance of shares of
stock to the rightful owners, nullification of shares of stock, reconveyance of
property impressed with trust, accounting, removal of officers and directors
and damages against Virginia Gochan, et. al. (Gochans) A Notice of Lis
Pendens was annotated to the real properties of the corporation.
On 16 March 1994, the Gochans moved to dismiss the complaint

alleging that: (1) the SEC had no jurisdiction over the nature of the action; (2)
the the Youngs were not the real parties-in-interest and had no capacity to sue;
and (3) the Youngs' causes of action were barred by the Statute of Limitations.
The motion was opposed by the Youngs. On 29 March 1994, the Gochans
filed a Motion for cancellation of Notice of Lis Pendens. The Youngs opposed
the said motion. On 9 December 1994, the SEC, through its Hearing Officer,
granted the motion to dismiss and ordered the cancellation of the notice of lis
pendens annotated upon the titles of the corporate lands; holding that the
Youngs never been stockholders of record of FGSRC to confer them with the
legal capacity to bring and maintain their action, and thus, the case cannot be
considered as an intra-corporate controversy within the jurisdiction of the
SEC; and that on the allegation that the Youngs brought the action as a
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derivative suit on their own behalf and on behalf of Gochan Realty, rhe failure
to comply with the jurisdictional requirement on derivative action necessarily
result in the dismissal of the complaint. The Youngs filed a Petition for
Review with the Court of Appeals. On 28 February 1996, the Court of Appeals
ruled that the SEC had no jurisdiction over the case as far as the heirs of Alice
Gochan were concerned, because they were not yet stockholders of the
corporation. On the other hand, it upheld the capacity of Cecilia Gochan Uy
and her spouse Miguel Uy. It also held that the Intestate Estate of John Young
Sr. was an indispensable party. The appellate court further ruled that the
cancellation of the notice of lis pendens on the titles of the corporate real estate
was not justified. Moreover, it declared that the Youngs' Motion for
Reconsideration before the SEC was not pro forma; thus, its filing tolled the
appeal period. The Gochans moved for reconsideration but were denied in a
Resolution dated 18 December 1997. The Gochans filed the Petition for
Review on Certiorari.
Issue:
Whether the action filed by the Spouses Uy was not a derivative suit,
because the spouses and not the corporation were the injured parties.
Ruling:
No, it is a derivative suit. The following portions of the Complaint

shows allegations of injury to the corporation itself, to wit: "That on
information and belief, in further pursuance of the said conspiracy and for the
fraudulent purpose of depressing the value of the stock of the Corporation and
to induce the minority stockholders to sell their shares of stock for an
inadequate consideration as aforesaid, respondent Esteban T. Gochan . . ., in
violation of their duties as directors and officers of the Corporation . . .,
unlawfully and fraudulently appropriated [for] themselves the funds of the
Corporation by drawing excessive amounts in the form of salaries and cash
advances . . . and by otherwise charging their purely personal expenses to the
Corporation"; and "That the payment of P1,200,000.00 by the Corporation to
complainant Cecilia Gochan Uy for her shares of stock constituted an
unlawful, premature and partial liquidation and distribution of assets to a
stockholder, resulting in the impairment of the capital of the Corporation and
prevented it from otherwise utilizing said amount for its regular and lawful
business, to the damage and prejudice of the Corporation, its creditors, and of
complainants as minority stockholders."
As early as 1911, the Court has recognized the right of a single

stockholder to file derivative suits. "Where corporate directors have
committed a breach of trust either by their frauds, ultra vires acts, or
negligence, and the corporation is unable or unwilling to institute suit to
remedy the wrong, a single stockholder may institute that suit, suing on behalf
of himself and other stockholders and for the benefit of the corporation, to
bring about a redress of the wrong done directly to the corporation and
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indirectly to the stockholders." Herein, the Complaint alleges all the

components of a derivative suit. The allegations of injury to the Spouses Uy
can coexist with those pertaining to the corporation. The personal injury
suffered by the spouses cannot disqualify them from filing a derivative suit on
behalf of the corporation. It merely gives rise to an additional cause of action
for damages against the erring directors. This cause of action is also included
in the Complaint filed before the SEC. The Spouses Uy have the capacity to
file a derivative suit in behalf of and for the benefit of the corporation. The
reason is that the allegations of the Complaint make them out as stockholders
at the time the questioned transaction occurred, as well as at the time the action
was filed and during the pendency of the action.
CORPORATION LAW
PART IV
PIERCING THE VEIL OF CORPORATION

FICTION
89 Traders Royal Bank vs. Court of Appeals
93 Ramoso vs. Court of Appeals
95 Umali vs. Court of Appeals
97 Indophil Textile Mill Workers Union – PTGWO vs. Calica
100 Manila Hotel Corporation vs. NLRC
103 Reynoso IV vs. Court of Appeals
105 PNB vs. Ritratto Group, Inc., et.al
CORPORATION LAW
TRADERS ROYAL BANK, petitioner, vs. COURT OF APPEALS,

FILRITERS GUARANTY ASSURANCE CORPORATION and
CENTRAL BANK of the PHILIPPINES, respondents.
G.R. No. 93397 March 3, 1997 TORRES, JR., J.:
The corporate debt or credit is not the debt or credit of the stockholder
nor is the stockholder's debt or credit that of the corporation.
Facts:
Herein defendant Filriters is the registered owner of CBCI No. D891.

Under a deed of assignment dated November 27, 1971, Filriters transferred
CBCI No. D891 to Philippine Underwriters Finance Corporation
(Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which
was still registered in the name of Filriters, to appellant Traders Royal Bank
(TRB). The transfer was made under a repurchase agreement dated February
4, 1981, granting Philfinance the right to repurchase the instrument on or
before April 27, 1981. When Philfinance failed to buy back the note on
maturity date, it executed a deed of assignment, dated April 27, 1981,
conveying to appellant TRB all its right and the title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and
registration of CBCI No. D891 in its name before the Security and Servicing
Department of the Central Bank (CB). Central Bank, however, refused to
effect the transfer and registration in view of an adverse claim filed by
defendant Filriters.
Left with no other recourse, TRB filed a special civil action for
mandamus against the Central Bank in the Regional Trial Court of Manila
raising the issue that since Philfinance owns 90% of Filriters equity and the
two corporations have identical corporate officers, thus demanding the
application of the doctrine or piercing the veil of corporate fiction, as to give
validity to the transfer of the CBCI from registered owner to petitioner TRB.
Hence, the same shall render the payment by TRB to Philfinance of CBCI, as
actual payment to Filriters. Failing to get a favorable judgment. TRB now
comes to this Court on appeal.
Issue:
Whether or not the payment of TRB to Philfinance is also deemed to be

the payment for Filriters, as Philfinance owns 90% of Filriters.
Ruling:
No. Piercing the veil of corporate entity requires the court to see
through the protective shroud which exempts its stockholders from liabilities
that ordinarily, they could be subject to, or distinguished one corporation from
a seemingly separate one, were it not for the existing corporate fiction. But to
do this, the court must be sure that the corporate fiction was misused, to such
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an extent that injustice, fraud, or crime was committed upon another,

disregarding, thus, his, her, or its rights. It is the protection of the interests of
innocent third persons dealing with the corporate entity which the law aims to
protect by this doctrine.
The corporate separateness between Filriters and Philfinance remains,

despite the petitioners insistence on the contrary. For one, other than the
allegation that Filriters is 90% owned by Philfinance, and the identity of one
shall be maintained as to the other, there is nothing else which could lead the
court under circumstance to disregard their corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not
defrauded at all when it acquired the subject certificate of indebtedness from
Philfinance. On its face the subject certificates states that it is registered in the
name of Filriters. This should have put the petitioner on notice, and prompted
it to inquire from Filriters as to Philfinance's title over the same or its authority
to assign the certificate. As it is, there is no showing to the effect that petitioner
had any dealings whatsoever with Filriters, nor did it make inquiries as to the
ownership of the certificate.
CORPORATION LAW
RUFINA LUY LIM vs. COURT OF APPEALS, AUTO TRUCK TBA

CORPORATION, SPEED DISTRIBUTING, INC., ACTIVE
DISTRIBUTORS, ALLIANCE MARKETING
CORPORATION, ACTION COMPANY, INC.
G.R. No. 124715. January 24, 2000. BUENA, J.:
Where real properties included in the inventory of the estate of a

decedent are in the possession of and are registered in the name of the
corporations, in the absence of any cogency to shred the veil of corporate
fiction, the presumption of conclusiveness of said titles in favor of said
corporations should stand undisturbed.
Facts:
Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y.
Lim whose estate is the subject of probate proceedings. Private respondents
Distributing, Inc., Active Distributing, Inc. and Action Company are
On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as

surviving spouse and duly represented by her nephew George Luy, a joint
petition for the administration of the estate of Pastor Y. Lim before the
Regional Trial Court of Quezon City. Private respondent corporations, whose
properties were included in the inventory of the estate of Pastor Y. Lim, then
filed a motion for the lifting of lis pendens and motion for exclusion of certain
properties from the estate of the decedent. The RTC granted the private
respondents twin motions.
Subsequently, Rufina Luy Lim filed a verified amended petition,

raising the issue that not only the properties of private respondent corporations
are properly part of the decedents estate but also the private respondent
corporations themselves because it was late Pastor Y. Lim during his lifetime,
organized and wholly-owned the five corporations. In addition, petitioner
attached the petition for review affidavits executed by Teresa Lim and Lani
Wenceslao which among others, contained averments that the late Pastor Y.
Lim during his organized and owned the five corporations and the other
“incorporators” of the said Corporations had no actual participation in the
organization and incorporation of the said corporation. In short, they were just
dummies of the corporation. The RTC set aside its previous ruling and
directed to reinstate the annotation of lis pendens.
On 04 September 1995, the probate court appointed Rufina Lim as

special administrator. Private respondent filed a special civil action for
certiorari, with an urgent prayer for a restraining order or writ of preliminary
injunction, before the Court of Appeals questioning the orders of the Regional
Trial Court, sitting as a probate court. The CA, rendered a decision in favor of
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herein private respondents. Aggrieved, Lim filed a petition for review on

certiorari.
Issue:
Whether or not a corporation can be a proper subject of and be included

in the inventory of the estate of a deceased person.
Ruling:
No. It is settled that a corporation is clothed with personality separate

with it. Nonetheless, the shield is not at all times invincible. The corporate
mask may be lifted and the corporate veil may be pierced when a corporation
is just but the alter ego of a person or of another corporation. Where badges
of fraud exist, where public convenience is defeated; where a wrong is sought
to be justified thereby, the corporate fiction or the notion of legal entity should
come to naught. Moreover, to disregard the separate juridical personality of a
corporation, the wrong-doing must be clearly and convincingly established. It
cannot be presumed.
In the present case, petitioner nonetheless failed to adduce competent

evidence that would have justified the court to impale the veil of corporate
fiction. Truly, the reliance reposed by petitioner on the affidavits executed by
Teresa Lim and Lani Wenceslao is unavailing considering that the
aforementioned documents possess no weighty probative value pursuant to
the hearsay rule. Besides it is imperative for us to stress that such affidavits
are inadmissible in evidence inasmuch as the affiants were not at all presented
during the course of the proceedings in the lower court. WHEREFORE, in
view of the foregoing disquisitions, the instant petition is hereby DISMISSED
for lack of merit and the decision of the Court of Appeals which nullified and
set aside the orders issued by the Regional Trial Court, Branch 93, acting as a
probate court, dated 04 July 1995 and 12 September 1995 is AFFIRMED.
CORPORATION LAW
AVELINA G. RAMOSO vs. COURT OF APPEALS

G.R. NO. 117416, DECEMBER 8, 2000, QUISUMBING, J.
Whether the existence of the corporation should be pierced depends on

questions of facts, appropriately pleaded. Mere allegation that a corporation
is the alter ego of the individual stockholders is insufficient. The presumption
is that the stockholders or officers and the corporation are distinct entities.
The burden of proving otherwise is on the party seeking to have the court
pierce the veil of corporate entity.
Facts:
Avelina Ramoso and several others are investors and majority stock
holders of the franchise branches of Commercial Credit Corporation (CCC).
CCC is a lending and investment firm. CCC contracted with its

franchise branches for the latter to assign its receivables to CCC. But this
practice was discontinued due to a prohibition (DOSRI rule) issued by the
Central Bank where corporations are prohibited from lending funds to persons
with related interests, among others. To circumvent this, CCC incorporated
CCC Equity, a wholly owned subsidiary to manage the franchise branches.
CCC later changed its name to General Credit Corporation (GCC).
In 1981, Ramoso et al alleged that they discovered several bad business

practices being conducted by GCC; that such questionable practices divested
GCC of its assets thereby placing the franchise branches at a disadvantage;
that GCC, through CCC Equity mismanaged the franchise branches thereby
causing imminent losses to the investors.
Ramoso et al then sued GCC before the Securities and Exchange

Commission. The hearing officer ruled in favor of Ramoso et al. He pierced
the veil of corporate fiction and he declared that the franchise branches, GCC,
and CCC equity are one and the same corporation; that as such, the franchise
branches, in whom Ramoso et al invested, are not liable to the obligations
incurred by GCC. The SEC en banc however reversed the ruling of the hearing
officer. The Court of Appeals affirmed the SEC en banc.
Issue:
Whether or not the veil of corporate fiction should be pierced.
Ruling:
No. Ramoso et al did not properly plead their cause. They merely
alleged that CCC Equity is a conduit of GCC. As found by the SEC en banc,
Ramoso et al were not able to prove that CCC Equity was incorporated in
order to perpetrate fraud against them. Whether the existence of the
corporation should be pierced depends on questions of facts, appropriately
pleaded. Mere allegation that a corporation is the alter ego of the individual
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stockholders is insufficient. The presumption is that the stockholders or

officers and the corporation are distinct entities. The burden of proving
otherwise is on the party seeking to have the court pierce the veil of the
corporate entity. It was not shown that the debts incurred by GCC were
actually incurred in bad faith. Further, there is a pending case relating to the
liability of Ramoso et al as guarantors – that will be the proper forum to raise
their respective liability as regards said debts.
CORPORATION LAW
BUENAFLOR C. UMALI vs. COURT OF APPEALS, BORMAHECO,

INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING
CO., INC.
G.R. No. 89561, September 13, 1990, REGALADO, J.:
Piercing the veil of corporate fiction is remedy of last resort and is not
available when other remedies are still available.
Facts:
Mauricia Castillo was the administratrix in charge over a parcel of land

left be Felipe Castillo. Said land was mortgaged to the Development Bank of
the Philippines and was about to be foreclosed but then Mauricia’s nephew,
Santiago Rivera, proposed that they convert the land into 4 subdivisions so
that they can raise the necessary money to avoid foreclosure. Mauricia agreed.
Rivera sought to develop said land through his company, Slobec Realty
Corporation (SRC), of which he was also the president. SRC then contracted
with Bormaheco, Inc. for the purchase of one tractor. Bormaheco agreed to
sell the tractor on an installment basis. At the same time, SRC mortgaged said
tractor to Bormaheco as security just in case SRC will default. As additional
security, Mauricia and other family members executed a surety agreement
whereby in case of default in paying said tractor, the Insurance Corporation
of the Philippines (ICP) shall pay the balance. The surety bond agreement
between Mauricia and ICP was secured by Mauricia’s parcel of land (same
land to be developed).
SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor

but it wasn’t enough hence ICP paid the deficiency. ICP then foreclosed the
property of Mauricia. ICP later sold said property to Philippine Machinery
Parts Manufacturing Corporation (PMPMC). PMPMC then demanded
Mauricia et al to vacate the premises of said property.
While all this was going on, Mauricia died. Her successor-
administratrix, Buenaflor Umali, questioned the foreclosure made by ICP.
Umali alleged that all the transactions are void and simulated hence they were
defrauded; that through Bormaheco’s machinations, Mauricia was fooled into
entering into a surety agreement with ICP; that Bormaheco even made the
premium payments to ICP for said surety bond; that the president of
Bormaheco is a director of PMPMC; that the counsel who assisted in all the
transactions, Atty. Martin De Guzman, was the legal counsel of ICP,
Bormaheco, and PMPMC.
Issue:
Whether or not the veil of corporate fiction should be pierced.
CORPORATION LAW
Ruling:
No. There is no clear showing of fraud in this case. The mere fact that
Bormaheco paid said premium payments to ICP does not constitute fraud per
se. As it turned out, Bormaheco is an agent of ICP. SRC, through Rivera,
agreed that part of the payment of the mortgage shall be paid for the insurance.
Naturally, when Rivera was paying some portions of the mortgage to
Bormaheco, Bormaheco is applying some parts thereof for the payment of the
premium – and this was agreed upon beforehand.
Further, piercing the veil of corporate fiction is not the proper remedy
in order that the foreclosure conducted by ICP be declared a nullity. The
nullity may be attacked directly without disregarding the separate identity of
the corporations involved. Further still, Umali et al are not enforcing a claim
against the individual members of the corporations. They are not claiming said
members to be liable. Umali et al are merely questioning the validity of the
foreclosure.
The veil of corporate fiction can’t be pierced also by the simple reason
that the businesses of two or more corporations are interrelated, absent
sufficient showing that the corporate entity was purposely used as a shield to
defraud creditors and third persons of their rights. In this case, there is no
justification for disregarding their separate personalities.
CORPORATION LAW
INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO vs.

VOLUNTARY ARBITRATOR TEODORICO P. CALICA and
INDOPHIL TEXTILE MILLS, INC.
G.R. No. 96490, February 3, 1992, MEDIALDEA, J.
Piercing is not allowed unless the remedy sought is to make the officer
or another corporation pecuniarily liable for corporate debts.
Facts:
Indophil Textile Mill Workers Union-PTGWO is a legitimate labor

organization and the exclusive bargaining agent of all the rank-and-file
employees of Indophil Textile Mills, Incorporated. Teodorico P. Calica is the
Voluntary Arbitrator of the National Conciliation and Mediation Board of the
Department of Labor and Employment, while Indophil Textile Mills, Inc. is a
corporation engaged in the manufacture, sale and export of yarns of various
counts and kinds and of materials of kindred character.
Indophil Textile Mill Workers Union-PTGWO and Indophil Textile

Mills, Inc. executed a collective bargaining agreement.
7 months later, Indophil Acrylic Manufacturing Corporation was

formed and registered with the Securities and Exchange Commission
(different from above Indophil Textile). Acrylic applied for registration with
the Board of Investments for incentives under the 1987 Omnibus Investments
Code. The application was approved on a preferred non-pioneer status.
Acrylic became operational and hired workers according to its own

criteria and standards. The workers of Acrylic unionized and a duly certified
collective bargaining agreement was executed. A year after, the union claimed
that the plant facilities built and set up by Acrylic should be considered as an
extension or expansion of the facilities of Indophil Textile Mills pursuant to
Section 1(c), Article I of the CBA. In other words, it is the Union's contention
that Acrylic is part of the Indophil bargaining unit. The union alleged that:
1. Both corporations are engaged in the same line of business.
2. Both have their physical plants, offices and facilities in the same
compound.
3. Many of Indophil Textile’s machines were transferred and
installed and were being used in Acrylic.
4. Services of a number of units, departments and sections were
being provided to Acrylic.
5. Employees of Indophil Textile were the same persons manning
and servicing Acrylic.
Indophil Textile opposed, saying it was a juridical entity separate and

distinct from Acrylic. It argued through the SolGen that Acrylic was not an
alter ego or an adjunct or business conduit of Indophil Textile Mills because
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it had a separate business purpose. Indophil Textile engaged in the business

of manufacturing yarns of various counts and kinds and textiles., while
Acrylic manufactured, bough, sold, at wholesale basis, bartered, imported,
exported and otherwise dealt in yarns of various counts and kinds. Acrylic
cannot manufacture textiles while Indophil cannot buy or import yarns.
The existing impasse led the parties to enter into a submission

agreement. The parties jointly requested Calica to act as voluntary arbitrator
in the resolution of the pending labor dispute pertaining to the proper
interpretation of the CBA provision. Calica ruled that the proper interpretation
and application of Sec. 1, (c), Art. I of the 1987 CBA does not extend to the
employees of Acrylic as an extension or expansion of Indophil Textile Mills,
Inc.
Issue:
Whether the operations in Indophil Acrylic Corporation an extension

or expansion of Indophil Textile Mills.
Ruling:
Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or stockholders
may be disregarded.
In such cases, the corporation will be considered as a mere association

of persons.
The members or stockholders or the corporation will be considered as

the corporation, that is, liability will attach directly to the officers and
stockholders.
The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is made
as a shield to confuse the legitimate issues, or where a corporation is the mere
alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation.
In the case at bar, the union seeks to pierce the veil of corporate entity
of Acrylic, alleging that the creation of the corporation is a devise to evade
the application of the CBA between the Union and Indophil Textile. While
the Court does not discount the possibility of the similarities of the businesses
of Indophil Textile Mills and Acrylic, neither is it inclined to apply the
doctrine invoked by the union in granting the relief sought.
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The fact that the businesses of Indophil Textile and Acrylic are related,
that some of the employees of Indophil Textile are the same persons manning
and providing for auxiliary services to the units of Acrylic, and that the
physical plants, offices and facilities are situated in the same compound, it is
the Court’s opinion that these facts are not sufficient to justify the piercing of
the corporate veil of Acrylic.
Although it was shown that the two corporations’ businesses are

related, that some of the employees of the two corporations are interchanged,
and that the physical plants, offices, and facilities, are situated in the same
compound, were not considered sufficient bases to pierce the veil in order to
treat the two corporations as one bargaining unit. The legal corporate entity is
disregarded only if it is sought to hold the officers and stockholders directly
liable for a corporate debt or obligation.
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THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD.

vs. NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 120077, October 13, 2000,PARDO, J.
The tests in determining whether the corporate veil may be pierced are:
(1) the defendant must have control or complete domination of the other
corporation’s finances, policy and business practices with regard to the
transaction attached; (2) control must be used by the defendant to commit
fraud or wrong; and (3) the aforesaid control or breach of duty must be the
proximate cause of the injury or loss complained of.
Facts:
In May 1988, Marcelo Santos was an overseas worker in Oman. In June

1988, he was recruited by Palace Hotel in Beijing, China. Due to higher pay
and benefits, Santos agreed to the hotel’s job offer and so he started working
there in November 1988. The employment contract between him and Palace
Hotel was however without the intervention of the Philippine Overseas
Employment Administration (POEA). In August 1989, Palace Hotel notified
Santos that he will be laid off due to business reverses. In September 1989, he
was officially terminated.
In February 1990, Santos filed a complaint for illegal dismissal against

Manila Hotel Corporation (MHC) and Manila Hotel International, Ltd.
(MHIL). The Palace Hotel was impleaded but no summons were served upon
it. MHC is a government owned and controlled corporation. It owns 50% of
MHIL, a foreign corporation (Hong Kong). MHIL manages the affair of the
Palace Hotel. The labor arbiter who handled the case ruled in favor of Santos.
The National Labor Relations Commission (NLRC) affirmed the labor arbiter.
Issue:
Whether or not the NLRC has jurisdiction over the case.
Ruling:
No. The NLRC is a very inconvenient forum for the following reasons:
The only link that the Philippines has in this case is the fact that Santos
is a Filipino.
Even if we assume two things: (1) that the NLRC had jurisdiction over
the case, and (2) that MHICL was liable for Santos' retrenchment, still MHC,
as a separate and distinct juridical entity cannot be held liable.
True, MHC is an incorporator of MHICL and owns fifty percent (50%)

of its capital stock. However, this is not enough to pierce the veil of corporate
fiction between MHICL and MHC.
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Piercing the veil of corporate entity is an equitable remedy. It is resorted

to when the corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend a crime. 41 It is done only when a corporation
is a mere alter ego or business conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals,we held that "the mere

ownership by a single stockholder or by another corporation of all or nearly
all of the capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities."
The tests in determining whether the corporate veil may be pierced

are: First, the defendant must have control or complete domination of the
other corporation's finances, policy and business practices with regard to the
transaction attacked. There must be proof that the other corporation had no
separate mind, will or existence with respect the act complained of. Second,
control must be used by the defendant to commit fraud or wrong. Third, the
aforesaid control or breach of duty must be the proximate cause of the injury
or loss complained of. The absence of any of the elements prevents the
piercing of the corporate veil.
It is basic that a corporation has a personality separate and distinct from

those composing it as well as from that of any other legal entity to which it
may be related. Clear and convincing evidence is needed to pierce the veil of
corporate fiction.In this case, we find no evidence to show that MHICL and
MHC are one and the same entity.
Santos’ contract with the Palace Hotel was not entered into in the
Philippines.
Santos’ contract was entered into without the intervention of the POEA
(had POEA intervened, NLRC still does not have jurisdiction because it will
be the POEA which will hear the case).
MHIL and the Palace Hotel are not doing business in the Philippines;
their agents/officers are not residents of the Philippines.
Due to the foregoing, the NLRC cannot possibly determine all the
relevant facts pertaining to the case. It is not competent to determine the facts
because the acts complained of happened outside our jurisdiction. It cannot
determine which law is applicable. And in case a judgment is rendered, it
cannot be enforced against the Palace Hotel (in the first place, it was not
served any summons).
The Supreme Court emphasized that under the rule of forum non conveniens,
a Philippine court or agency may assume jurisdiction over the case if it
chooses to do so provided:
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(1) that the Philippine court is one to which the parties may conveniently
resort to;
(2) that the Philippine court is in a position to make an intelligent decision as

to the law and the facts; and
(3) that the Philippine court has or is likely to have power to enforce its
decision.
None of the above conditions are apparent in the case at bar.
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BIBIANO O. REYNOSO, IV vs. HON. COURT OF APPEALS and

GENERAL CREDIT CORPORATION
G.R. Nos. 116124-25, November 22, 2000, YNARES-SANTIAGO, J.:
A corporation has no power except those expressly conferred on it by

the Corporation Code and those that are implied or incidental to its existence.
In turn, a corporation exercises said powers through its board of directors
and/or its duly authorized officers and agents, since the physical acts of the
corporation, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose of by corporate by-laws or by a
specific act of the board of directors.
Facts:
Reynoso was the branch manager of Commercial Credit Corporation –

Quezon City (CCC-QC), a branch of Commercial Credit Corporation (CCC).
It was alleged that Reynoso was opposed to certain questionable commercial
practices being facilitated by CCC which caused its branches, like CCC-QC,
to rack up debts. Eventually, Reynoso withdrew his own funds from CCC-
QC. This prompted CCC-QC to file criminal cases for estafa and qualified
theft against Reynoso. The criminal cases were dismissed and Reynoso was
exonerated and at the same time CCC-QC was ordered to pay Reynoso’s
counterclaims which amounted to millions. A writ of execution was issued
against CCC-QC. The writ was opposed by CCC-QC as it now claims that it
has already closed and that its assets were taken over by the mother company,
CCC.
Meanwhile, CCC changed its name to General Credit Corporation

(GCC).
Reynoso then filed a petition for an alias writ of execution. GCC

opposed the writ as it argued that it is a separate and distinct corporation from
CCC and CCC-QC, in short, it raises the defense of corporate fiction.
Issue:
Whether or not GCC is correct.
Ruling:
No. The veil of corporate fiction must be pierced. It is obvious that

CCC’s change of name to GCC was made in order to avoid liability. CCC-
QC willingly closed down and transferred its assets to CCC and thereafter
changed its name to GCC in order to avoid its responsibilities from its
creditors. GCC and CCC are one and the same; they are engaged in the same
line of business and single transaction process, i.e. finance and investment.
When the mother corporation and its subsidiary cease to act in good faith and
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honest business judgment, when the corporate device is used by the parent to
avoid its liability for legitimate obligations of the subsidiary, and when the
corporate fiction is used to perpetrate fraud or promote injustice, the law steps
in to remedy the problem. When that happens, the corporate character is not
necessarily abrogated. It continues for legitimate objectives. However, it is
pierced in order to remedy injustice, such as that inflicted in this case.
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PHILIPPINE NATIONAL BANK vs. RITRATTO GROUP INC.,

RIATTO INTERNATIONAL, INC., and DADASAN GENERAL
MERCHANDISE
G.R. No. 142616, July 31, 2001, KAPUNAN, J.
Whether the existence of the corporation should be pierced depends on

questions of facts, appropriately pleaded. Mere allegation that a corporation
is the alter ego of the individual stockholders is insufficient.
Facts:
Petitioner PNB is a domestic corporation organized and existing under

the Philippine law. Respondents Ritratto Group, Inc., Riatto International, Inc.
and Dadasan General Merchandise are domestic corporations organized and
existing under Philippine law.
PNB International Finance Ltd. (PNB-IFL), a subsidiary company of

PNB, organized and doing business in Hongkong, extended a letter of credit
in favor of the respondents in the amount of US$300,000 secured by real estate
mortgages constituted over four parcels of land in Makati City. This credit
facility was later increased successively to US$1,290,000 in November 1996;
to US$1,425,000 in February 1997; and decreased to US$1,421,316.18 in
April 1998. Respondents made repayments of the loan incurred by remitting
those amounts to their loan account with PNB-IFL in Hongkong. As of April
30,1998, their outstanding obligations stood at US$1,497,274.70.
PNB-IFL, through its attorney-in-fact PNB, notified the respondents of

the foreclosure of all the real estate mortgages and that the properties subject
thereof were to be sold at a public auction.
Respondents filed a complaint for injunction with prayer for the

issuance of a writ of preliminary injunction and/or TRO before the RTC of
Makati.
Petitioner filed a motion to dismiss on the grounds of failure to state a

cause of action and the absence of any privity between the petitioner and
respondents.
TC issued an order for the issuance of writ of prelim injunction. Motion

to Dismiss denied.
CA dismissed. Hence, this petition.
Issue:
Whether PNB is privy to the loan contracts entered into by the

respondent. WON PNB is an alter ego of PNB-IFL.
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Ruling:
1. The contract is one entered into between respondent and PNB-IFL,

not PNB. Respondents admit that petitioner is a mere attorney-in-fact for the
PNB IFL with full power and authority to, inter alia, foreclose on the
properties mortgaged to secure their loan obligations with PNB-IFL.
Petitioner is an agent with limited authority and specific duties under a

special power of attorney incorporated in the real estate mortgage. It is not
privy to the loan contracts entered into by respondents and PNB-IFL.
2. The mere fact that a corporation owns all of the stocks of another
corporation, taken alone is not sufficient to justify their being treated as one
entity. If used to perform legitimate functions, a subsidiary’s separate
existence may be respected, and the liability of the parent corporation as well
as the subsidiary will be confined to those arising in their respective business.
The courts may, in the exercise of judicial discretion, step in to prevent the
abuses of separate entity privilege and pierce the veil of corporate entity.
3. Doctrine of piercing the corporate evil is an equitable doctrine

developed to address situations where the separate corporate personality of a
corporation is abused or used for wrongful purposes. It applies when the
corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or when it is made a shield to confuse the legitimate
issues, or where a corporation is the mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.
4. Test in determining the applicability of the doctrine of piercing the

veil:
a. Control, not mere majority or complete control, but complete

domination, not only of finances but of policy and business practice.
b. Such control must have been used by the defendant to commit fraud
or wrong
c. The aforesaid control and breach of duty must proximately cause

the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the

corporate veil. In applying the “instrumentality” or “alter ego” doctrine, the
courts are concerned with reality and not form, with how the corporation
operated and the individual defendant’s relationship to the operation.
Doctrine of piercing the veil based on alter ego or instrumentality finds no
application in this case.
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PNB-IFL is a wholly owned subsidiary of petitioner PNB.
There is no showing of the indicative factors that the former corporation

is a mere instrumentality of the latter.
There is no demonstration that any of the evils sought to be prevented

by the doctrine of piercing the corporate veil exists.
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PART V
CLASSIFICATION OF CORPORATIONS
108 National Coal Co. vs. Collector of Internal Revenue
110 Boy Scouts of the Philippines vs. NLRC
112 Bliss Dev’t. Corp. Employees Union vs. Calleja
114 Benguet Electric Cooperative, Inc. vs. NLRC
116 Director of Land vs. IAC, 146 SCRA 509
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NATIONAL COAL COMPANY vs. THE COLLECTOR OF

INTERNAL REVENUE
G.R. No. L-22619, December 2, 1924, JOHNSON, J.
Majority shares by the Government does not make an entity a public

corporation.
Facts:
The plaintiff corporation was created on the 10th day of March 1917,
by Act No. 2705, for the purpose of developing the coal industry in the
Philippine Islands , in harmony with the general plan of the government to
encourage the development of natural resources of the country, and to provide
facilities therefore.
By the said act, the company was granted the general powers of a
corporation and such other powers as may be necessary to enable it to
prosecute the business of developing coal deposits in the Philippine Islands of
mining, extracting, transporting, and selling the coal contained in said
deposits.
By the same law, the government of the Philippine Islands is made the
majority stockholder, evidently in order to ensure proper government
supervision and control and thus to place the government in a position to
render all possible encouragement, assistance, and help in the prosecution and
furtherance of the company’s business.
On May 14, 1917, two months after the passage of Act no. 2705,
creating the national coal company, the Philippine legislature passed Act
2719, “to provide for the leasing and development of coal lands in the
Philippine islands.”
On October 18, 1917, upon petition of the national coal company, the
governor-general, by proclamation no. 39, withdrew from settlement, entry,
sale or other deposition, all coal-bearing public lands within the province of
Zamboanga, Department of Mindanao and Sulu, and the island of Polillo,
Province of Tayabas.
Almost immediately after the issuance of said proclamation the national

coal company took possession of the coal lands within the said reservation
with an area of about 400 hectares, without any further formality, contract of
lease. Of the 30,000 shares of stock issued by the company, the government
of the Philippine islands is the owner of 29,809 shares, that is, of 99 1/3 per
centum of the whole capital stock.
Issue:
Whether or not plaintiff is a private corporation.
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Ruling:
Yes. The plaintiff is a private corporation. The mere fact that the
government happens to the majority stockholder does not make it a public
corporation. Act 2705, as amended by Act 2822, makes it subject to all the
provisions of the corporation law, in so far as they are not inconsistent with
said act. No provisions of Act 2705 are found to be inconsistent with the
provisions of the corporation law.
As a private corporation, it has no greater rights, powers or privileges

than any other corporation which might be organized for the same purpose
under the corporation law, and certainly it was not the intention of the
legislature to give it a preference or right or privilege over other legitimate
private corporations in the mining of coal.
While it is true that said proclamation no. 39 withdrew from settlement

entry, sale or other disposition of coal-bearing public lands within the
province of Zamboanga, and the islands of Polillo, it made no provision for
the occupation and operation by the plaintiff, to the exclusion of other persons
or corporations who might under proper permission, enter upon to operate the
coal mines.
CORPORATION LAW
BOY SCOUTS OF THE PHILIPPINES vs. NATIONAL LABOR

RELATIONS COMMISSION
G.R. No. 80767, April 22, 1991, FELICIANO, J.
Although Boy Scouts of the Philippines does not receive any monetary
or financial subsidy from the Government, and that its funds and assets are
not considered government in nature and not subject to audit by the COA, the
fact that it received a special charter from the government, that its governing
board are appointed by the Government, and that its purpose are of public
character, for they pertain to the educational, civic and social development of
the youth which constitute a very substantial and important part of the nation,
it is not a public corporation in the same sense that municipal corporation or
local governments are public corporation since its does not govern a portion
of the state, but it also does not have proprietary functions in the same sense
that the functions or activities of government-owned or controlled
corporations
Facts:
Private respondents Fortunato C. Esquerra, Roberto O. Malaborbor,

Estanislao M. Misa, Vicente N. Evangelista and Marcelino P. Garcia, had all
been rank-and-file employees of petitioner Boy Scouts of the Philippines
("BSP").
At the time of termination of their services in February 1985, private

respondents were stationed at the BSP Camp in Makiling, Los Baños, Laguna.
On 13 November 1984, a complaint (docketed as NLRC Case No. 16-

84J) for illegal transfer was filed with the then Ministry of Labor and
Employment, Sub-Regional Arbitration Branch IV, San Pablo City, Laguna.
Private respondents there sought to enjoin implementation of Special

Orders Nos. 80, 81, 83, 84 and 85, alleging, among other things, that said
orders were "indubitable and irrefutable action[s] prejudicial not only to
[them] but to [their] families and [would] seriously affect [their] economic
stability and solvency considering the present cost of living."
Issue:
Whether private respondent NLRC had jurisdiction to render the

Decision and Resolution which are here sought to be nullified.
Ruling:
While the BSP may be seen to be a mixed type of entity, combining

aspects of both public and private entities, we believe that considering the
character of its purposes and its functions, the statutory designation of the BSP
as "a public corporation" and the substantial participation of the Government
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in the selection of members of the National Executive Board of the BSP, the
BSP, as presently constituted under its charter, is a government-controlled
corporation within the meaning of Article IX. (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that the Administrative
Code of 1987 designates the BSP as one of the attached agencies of the
Department of Education, Culture and Sports ("DECS").
An "agency of the Government" is defined as referring to any of the

various units of the Government including a department, bureau, office,
instrumentality, government-owned or-controlled corporation, or local
government or distinct unit therein.
We believe that the BSP is appropriately regarded as "a government

instrumentality" under the 1987 Administrative Code.
It thus appears that the BSP may be regarded as both a "government
controlled corporation with an original charter" and as an "instrumentality" of
the Government within the meaning of Article IX (B) (2) (1) of the
Constitution. It follows that the employees of petitioner BSP are embraced
within the Civil Service and are accordingly governed by the Civil Service
Law and Regulations.
In view of the foregoing, we hold that both the Labor Arbiter and public
respondent NLRC had no jurisdiction over the complaint filed by private
respondents in NLRC Case No. 1637-84; neither labor agency had before it
any matter which could validly have been passed upon by it in the exercise of
original or appellate jurisdiction.
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BLISS DEVELOPMENT CORPORATION EMPLOYEES UNION

(BDCEU)-SENTRO NG DEMOKRATIKONG MANGGAGAWA
(SDM) vs. HON. PURA FERRER CALLEJA and BLISS
DEVELOPMENT CORPORATION
G.R. No. 80887, September 30, 1994, KAPUNAN, J.
A private corporation is created by operation of law under the

Corporation while a government corporation is normally created by special
law referred to often as a charter.
Facts:
Petitoner BDCEU-SDM is a duly registered labor union. It filed with

the Department of Labor, National Capital Region, a petition for certification
election of private respondent Bliss Development Corporation (BDC).
Med-Arbiter Fernando dismissed the petition for lack of jurisdiction

stating that the majority of BDC’s stocks is owned by the Human Settlement
Development Corporation (HSDC), a wholly-owned government corporation.
Therefore, BDC is subject to Civil Service law, rules and regulations. Its
employees therefore, are prohibited to join or form labor organization.
Petitioner then filed an appeal with Bureau of Labor Relations.
In the meantime, President Corazon Aquino issued Executive Order

No. 180, extending to government employees the right to organize and bargain
collectively.
Respondent Director Calleja (BLR) issued an order dismissing the

appeal ruling that Bliss Development Corporation which is under the then
Ministry of Human Settlement, is a government Corporation where the
workers are prohibited from organizing and joining labor unions.
However, with the issuance of EO 180 (government employees are now

given the right to bargain), the BLR enjoins the petitioner to register in
accordance with the provisions in said executive order.
Issue:
Whether BDC is a government-owned controlled corporation subject to

Civil Service Laws, rules and regulations. Corollary to this issue is the
question of W/N petitioner is covered by Executive Order No. 180 and must
register as a precondition for filing a petition for certification election.
Ruling:
In determining whether a corporation created under the Corporation

Code is government owned or controlled or not, the rule applied is the
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ownership test whereby a corporation will be deemed owned by the

government if the majority of its voting stocks are owned by the government.
It appearing that Human Settlement Development Corporation (HSDC),
which is a wholly-owned government corporation, owns a majority of the
stocks of Bliss Development Corporation (BDC), our conclusion is that BDC
is a government-owned corporation subject to the coverage of the Civil
Service law, rules and regulations.
Section 1 of Executive Order No. 180 expressly limits its application to

only government-owned or controlled corporations with original charters.
Hence, public respondent's order dated August 7, 1987 requiring petitioner to
register in accordance with Section 7 of executive Order No. 180 is without
legal basis.
A government-owned corporation could create several subsidiary

corporations. Conceivably, all government-owned or controlled corporations
could be created, no longer by special charters, but through incorporations
under the general law.
The Civil Service embraces government-owned or controlled

corporations with original charter; and, therefore, by clear implication, the
Civil Service does not include government-owned or controlled corporations
which are organized as subsidiaries of government-owned or controlled
corporations under the general corporation law.
A corporation is created by operation of law. It acquires a judicial

personality either by special law or a general law. The general law under
which a private corporation may be formed or organized is the Corporation
Code, the requirements of which must be complied with by those wishing to
incorporate.
Only upon such compliance will the corporation come into being and
acquire a juridical personality, thus giving rise to its right to exist and act as a
legal entity. On the other hand, a government corporation is normally created
by special law, referred to often as a charter.
BDC is a government-owned corporation created under the Corporation

Law. It is without a charter hence, Executive Order No. 180 does not apply to
it.
Consequently, public respondent committed grave abuse of discretion

in ordering petition to register under Section 7, of Executive Order No. 180 as
a precondition for filing a petition for certification election.
CORPORATION LAW
BENGUET ELECTRIC COOPERATIVE, INC. vs. NATIONAL

LABOR RELATIONS COMMISSION, PETER COSALAN and
BOARD OF DIRECTORS OF BENGUET ELECTRIC
COOPERATIVE, INC.
G.R. No. 89070, May 18, 1992, FELICIANO, J.
Board members and officers who purport to act for and in behalf of the
corporation, keep within the lawful scope of their authority in so acting and
act in good faith, do not become liable, whether civilly or otherwise, for the
consequences of their acts. Those acts, when they are such a nature and are
done under such circumstances, are properly attributed to the corporation
alone and no personal liability is incurred by such officers and Board
members.
Facts:
In 1982, Peter Cosalan, then general manager of the Benguet Electric

Cooperative (BENECO), received an audit report from the National
Electrification Administration (NEA). The said audit advised Cosalan of
certain irregularities in the management of the funds of BENECO. Cosalan
then sought to address the issue by introducing reforms recommended by the
NEA as well as by the auditing body, Commission on Audit. However, the
Board Members of BENECO reacted to these reforms by issuing a series of
resolutions which first reduced Cosalan’s salary and allowances, then he was
excluded from his work, and eventually, he was suspended indefinitely.
Cosalan then filed a complaint for illegal dismissal against the

BENECO Board Members, he later impleaded BENECO itself. The Labor
Arbiter (LA) ruled in favor of Cosalan. The National Labor Relations
Commission (NLRC) affirmed the decision of the LA but modified it so as to
absolve the Board Members from liability as it held that the Board Members
merely acted in their official capacity. BENECO, being the only party
adjudged to be liable, then appealed said decision.
Issue:
Whether or not the National Labor Relations Commission is correct.
Ruling:
No. The act of the Board Members is ultra vires. There was no legal
basis for them to suspend Cosalan indefinitely for under the Implementing
Rules of the Labor Code the maximum period form preventive suspension
should not go beyond 30 days. Further, it was found that Cosalan was never
informed of the charges against him nor was he afforded the opportunity to
present his case. He was deprived of due process. Nor was Cosalan’s
suspension approved by the NEA, which is also required for due process
purposes.
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These acts by the Board Members are tainted with bad faith. A very
strong presumption arises that the Board Members are acting in reprisal
against the reforms sought to be introduced by Cosalan in order to address the
irregularities within BENECO. The Board Members are therefore liable for
damages under Section 31 of the Corporation Code. And even though
BENECO is a cooperative, it is still covered by the Corporation Code because
under PD 269, cooperatives are considered as corporations.
The Supreme Court ruled that BENECO and the BENECO Board
Members are liable for the damages caused against Cosalan. However
BENECO can seek reimbursement from the Board Members so as not to
unduly penalize the innocent members of BENECO.
CORPORATION LAW
THE DIRECTOR OF LANDS vs. INTERMEDIATE APPELLATE

COURT and ACME PLYWOOD & VENEER CO. INC., ETC.
G.R. No. 73002 December 29, 1986, NARVASA, J.
The 1973 Constitution which forbids corporations from owning lands

of the public domain cannot defeat a right already vested before that law came
into effect, or invalidate transactions then perfectly valid and proper. The
Constitution cannot impair vested rights.
Facts:
Acme Plywood & Veneer Co., Inc., a corporation represented by Mr.
Rodolfo Nazario, acquired from Mariano and Acer Infiel, members of the
Dumagat tribe 5 parcels of land. The possession of the Infiels over the land
dates back before the Philippines was discovered by Magellan. This land
sought to be registered is a private land pursuant to RA 3872 granting absolute
ownership to members of the non-Christian Tribes on land occupied by them
or their ancestral lands, whether with the alienable or disposable public land
or within the public domain. Thereafter, Acme Plywood & Veneer Co. Inc.,
has introduced more than P45M worth of improvements and ownership and
possession of the land sought to be registered was duly recognized by the
government when the Municipal Officials of Maconacon, Isabela donated
part of the land as the townsite of Maconacon Isabela.
The Director of Lands takes no issue with any of these findings except
as to the applicability of the 1935 Constitution to the matter at hand.
Concerning this, he asserts that, the registration proceedings have been
commenced only on July 17, 1981, or long after the 1973 Constitution had
gone into effect, the latter is the correctly applicable law; and since section 11
of its Article XIV prohibits private corporations or associations from holding
alienable lands of the public domain, except by lease not to exceed 1,000
hectares (a prohibition not found in the 1935 Constitution which was in force
in 1962 when Acme purchased the lands in question from the Infiels), it was
reversible error to decree registration in favor of Acme.
Issue:
Whether or not the constitutional prohibition against the acquisition by
private corporations or associations applies.
Ruling:
NO. If it is accepted-as it must be-that the land was already private land
to which the Infiels had a legally sufficient and transferable title on October
29, 1962 when Acme acquired it from said owners, it must also be conceded
that Acme had a perfect right to make such acquisition. The only limitation
then extant was that corporations could not acquire, hold or lease public
agricultural lands in excess of 1,024 hectares. The purely accidental
circumstance that confirmation proceedings were brought under the aegis of
CORPORATION LAW
the 1973 Constitution which forbids corporations from owning lands of the
public domain cannot defeat a right already vested before that law came into
effect, or invalidate transactions then perfectly valid and proper. This Court
has already held, in analogous circumstances, that the Constitution cannot
impair vested rights.
The fact, therefore, that the confirmation proceedings were instituted

by Acme in its own name must be regarded as simply another accidental
circumstance, productive of a defect hardly more than procedural and in
nowise affecting the substance and merits of the right of ownership sought to
be confirmed in said proceedings, there being no doubt of Acme's entitlement
to the land. As it is unquestionable that in the light of the undisputed facts, the
Infiels, under either the 1935 or the 1973 Constitution, could have had title in
themselves confirmed and registered, only a rigid subservience to the letter of
the law would deny the same benefit to their lawful successor-in-interest by
valid conveyance which violates no constitutional mandate.
CORPORATION LAW
PART VI
CORPORATE CONTRACT LAW

118 Bayla vs. Silang Traffic Co., Inc.
120 Caram, Jr. vs. CA
121 Arnold Hall vs. Piccio
125 Lozano vs. Delos Santos
126 People vs. Garcia
CORPORATION LAW
SOFRONIO T. BAYLA, ET AL. vs. SILANG TRAFFIC CO., INC.,

G.R. Nos. L-48195 and 48196 May 1, 1942, OZAETA, J.
It has been held that a subscription to stock in an existing corporation

is, as between the subscriber and the corporation, simply a contract of
purchase and sale. As to forfeiture, the contract did not expressly provide that
the failure of the purchaser to pay any installment would give rise to the
forfeiture and cancellation without the necessity of any demand from the
seller. However, being a contract of sale, it may be rescinded by mutual
agreement of the parties.
Facts:
Petitioners purchased the following:

Sofronio T. Bayla....... 8 shares P360
Venancio Toledo........ 8 shares 375
Josefa Naval.............. 15 shares 675
The purchase price to be paid is 5% upon the execution of the contract

and the remainder in installments of 5%, payable within the 1st month of each
and every quarter starting July 1, 1935, w/ interest on deferred payments at
6%/annum until paid. They also agreed to forfeit in favor of seller in case of
default w/o court proceedings. Thereafter, there is a BOD resolution dated
Aug 1, 1937 rescinding the agreement.
Petitoners filed an action in the CFI against Silang Traffic Co. Inc to
recover certain sum of money w/c they had paid severally to the corporation
on account of shares of stock they individually agreed to take and pay for
under certain conditions. On the other hand, Silang Co. contended that the
resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval,
and Paz Toledo because on the date thereof "their subscribed shares of stock
had already automatically reverted to the defendant, and the installments paid
by them had already been forfeited" and that said resolution of August 1, 1937,
was revoked and cancelled by a subsequent resolution.
Issue:
Whether or not under the contract between the parties the failure of the
purchaser to pay any of the quarterly installments on the purchase price
automatically gave rise to the forfeiture of the amounts already paid and the
reversion of the shares to the corporation.
Ruling:
NO. The noted agreement is entitled "Agreement for Installment Sale

of Shares in the Silang Traffic Company, Inc.,"; that while the purchaser is
designated as "subscriber," the corporation is described as "seller". Whether a
particular contract is a subscription or a sale of stock is a matter of
CORPORATION LAW
construction and depends upon its terms and the intention of the parties.
Subscription is a mutual agreement of the subscribers to take and pay for the
stock of a corporation while purchase is an independent agreement between
the individual and the corp. to buy shares of stock from it at stipulated price.
Rules governing subscriptions and sales of shares are different. Moreover,
Corporation Law regarding calls for unpaid subscription and assessment of
stock (sections 37-50) do not apply to a purchase of stock. The Corporation
has no legal capacity to release an original subscriber to its capital stock from
the obligation to pay for his shares, is inapplicable to a contract of purchase
of shares.
The provision regarding interest on deferred payments would not have

been inserted if it had been the intention of the parties to provide for automatic
forfeiture and cancelation of the contract. The contract did not expressly
provide that the failure of the purchaser to pay any installment would give rise
to forfeiture and cancelation without the necessity of any demand from the
seller. The contract herein involved is one of sale and not of subscription as it
is an independent agreement between the individual purchaser, which is the
petitioners, and respondent corporation to buy the shares of stock at a
stipulated price. It does not involve a mutual agreement of the subscribers to
take and pay for the stock of the corporation. Whether a particular contract is
a purchase or a subscription of shares of stock is a matter of construction and
depends upon its terms and the intention of the parties. It has been held that a
subscription to stock in an existing corporation is, as between the subscriber
and the corporation, simply a contract of purchase and sale. As to forfeiture,
the contract did not expressly provide that the failure of the purchaser to pay
any installment would give rise to the forfeiture and cancellation without the
necessity of any demand from the seller. However, being a contract of sale,
it may be rescinded by mutual agreement of the parties.
CORPORATION LAW
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners vs.

THE HONORABLE COURT OF APPEALS and ALBERTO V.
ARELLANO, respondents.
June 30, 1987, G.R. No. L-48627, CRUZ, J.
This case emphasized once again the doctrine of separate judicial entity
which states that a corporation has a personality separate and distinct from
the persons composing it.
Facts:
A certain Barretto initiated the incorporation of a company called
Filipinas Orient Airways (FOA). Barretto was referred to as the “moving
spirit” of said corporation because it was through his effort that it was created.
Before FOA’s creation though, Barretto contracted with a third party, Alberto
Arellano, for the latter to prepare a project study for the feasibility of creating
a corporation like FOA. The project study was then presented to the would-
be incorporators and investors. On the basis of said project study, Fermin
Caram, Jr. and Rosa Caram agreed to be incorporators of FOA. Later however,
Arellano filed a collection suit against FOA, Barretto, and the Carams.
Arellano claims that he was not paid for his work on the project study.
Issue:
Whether or not the Carams are personally and solidarily liable
considering that the project study was contracted before FOA became a
corporation.
Ruling:
No. The Carams cannot be solidarily liable with FOA. The FOA is now
a bona fide corporation. As such, FOA alone should be liable for its corporate
acts as duly authorized by its officers and directors. This includes acts which
ultimately led to its incorporation i.e., the project study made by Arellano.
FOA has a separate and distinct personality from its incorporators. It is not
justified to make the Carams, as principal stockholders, to be responsible for
FOA’s obligations.
CORPORATION LAW
C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs.

EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte,
FRED BROWN, EMMA BROWN, et al, respondents
GR L-2598, 29 June 1950, BENGZON, J.
The personality of a corporation begins to exist only from the moment

such certificate is issued — not before. Not having obtained the certificate of
incorporation, the Far Eastern Lumber and Commercial Co. — even its
stockholders — may not probably claim "in good faith" to be a corporation.
Under the statue it is to be noted that it is the issuance of a certificate of
incorporation by the Director of the Bureau of Commerce and Industry which
calls a corporation into being.
Facts:
On 28 May 1947, C. Arnold Hall and Bradley P. Hall, and Fred Brown,
Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and
acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber
and Commercial Co., Inc., organized to engage in a general lumber business
to carry on as general contractors, operators and managers, etc. Attached to
the article was an affidavit of the treasurer stating that 23,428 shares of stock
had been subscribed and fully paid with certain properties transferred to the
corporation described in a list appended thereto. Immediately after the
execution of said articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.
On 2 December 1947, the said articles of incorporation were filed in the

office of the Securities and Exchange Commissioner, for the issuance of the
corresponding certificate of incorporation. On 22 March 1948, pending action
on the articles of incorporation by the aforesaid governmental office, Fred
Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed
before the Court of First Instance of Leyte the civil case, alleging among other
things that the Far Eastern Lumber and Commercial Co. was an unregistered
partnership; that they wished to have it dissolved because of bitter dissension
among the members, mismanagement and fraud by the managers and heavy
financial losses. C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss,
contesting the court's jurisdiction and the sufficiently of the cause of action.
After hearing the parties, the Hon. Edmund S. Piccio ordered the
dissolution of the company; and at the request of Brown, et. al., appointed
Pedro A. Capuciong as the receiver of the properties thereof, upon the filing
of a P20,000 bond. Hall and Hall offered to file a counter-bond for the
discharge of the receiver, but Judge Piccio refused to accept the offer and to
discharge the receiver. Whereupon, Hall and Hall instituted the present special
civil action with the Supreme Court.
CORPORATION LAW
Issue:
Whether or not Brown, et. al. may file an action to cause the dissolution
of the Far Eastern Lumber and Commercial Co., without State intervention.
Ruling:
The Securities and Exchange Commission has not issued the

corresponding certificate of incorporation. The personality of a corporation
begins to exist only from the moment such certificate is issued — not before.
Not having obtained the certificate of incorporation, the Far Eastern Lumber
and Commercial Co. — even its stockholders — may not probably claim "in
good faith" to be a corporation. Under the statue it is to be noted that it is the
issuance of a certificate of incorporation by the Director of the Bureau of
Commerce and Industry which calls a corporation into being. The immunity
if collateral attack is granted to corporations "claiming in good faith to be a
corporation under this act." Such a claim is compatible with the existence of
errors and irregularities; but not with a total or substantial disregard of the law.
Unless there has been an evident attempt to comply with the law the claim to
be a corporation "under this act" could not be made "in good faith."
This is not a suit in which the corporation is a party. This is a litigation

between stockholders of the alleged corporation, for the purpose of obtaining
its dissolution. Even the existence of a de jure corporation may be terminated
in a private suit for its dissolution between stockholders, without the
intervention of the state.
CORPORATION LAW
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC.,

petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN,
PHILIPPINE FOOTBALL FEDERATION, respondents.
G.R. No. 119002. October 19, 2000, KAPUNAN, J.
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.
Facts:
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.
Ruling:
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.
CORPORATION LAW
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.
CORPORATION LAW
REYNALDO M. LOZANO, petitioner, vs. HON. ELIEZER R. DE LOS

SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and ANTONIO
ANDA, respondents.
G.R. No. 125221. June 19, 1997, PUNO, J.
This case between Lozano and Anda is not an intra-corporate dispute.

UMAJODA is not yet incorporated. It is yet to submit its articles of
incorporation to the SEC. Thus, the regular courts have jurisdiction over the
case.
Facts:
Reynaldo Lozano was the president of KAMAJDA (Kapatirang

Mabalacat-Angeles Jeepney Drivers’ Association, Inc.). Antonio Anda was
the president of SAMAJODA (Samahang Angeles-Mabalacat Jeepney
Operators’ and Drivers’ Association, Inc.). In 1995, the two agreed to
consolidate the two corporations, thus, UMAJODA (Unified Mabalacat-
Angeles Jeepney Operators’ and Drivers Association, Inc.). In the same year,
elections for the officers of UMAJODA were held. Lozano and Anda both ran
for president. Lozano won but Anda alleged fraud and the elections and
thereafter he refused to participate with UMAJODA. Anda continued to
collect fees from members of SAMAJODA and refused to recognize Lozano
as president of UMAJODA. Lozano then filed a complaint for damages
against Anda with the MCTC of Mabalacat (and Magalang), Pampanga. Anda
moved for the dismissal of the case for lack of jurisdiction. The MCTC judge
denied Anda’s motion. On certiorari, Judge Eliezer De Los Santos of RTC
Angeles City reversed and ordered the dismissal of the case on the ground that
what is involved is an intra-corporate dispute which should be under the
jurisdiction of the Securities and Exchange Commission (SEC).
Issue:
Whether or not the RTC Judge is correct.
Rulings:
No. The regular courts have jurisdiction over the case. The case
between Lozano and Anda is not an intra-corporate dispute. UMAJODA is
not yet incorporated. It is yet to submit its articles of incorporation to the SEC.
It is not even a dispute between KAMAJDA or SAMAJODA. The controversy
between Lozano and Anda does not arise from intra-corporate relations but
rather from a mere conflict from their plan to merge the two associations.
CORPORATION LAW
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs.

ENGR.CARLOS GARCIA y PINEDA
G.R. No. 117010 April 18, 1997, PUNO, J.
All persons who assume to act as a corporation knowing it to be without

authority to do so shall be liable as general partners for all the debts,
liabilities and damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any tort committed by it as
such, it shall not be allowed to use as a defense its lack of corporate
personality.
Facts:
In 1993, Carlos Garcia, Patricio Botero, and Luisa Miraples were

accused of illegal recruitment. It was alleged that they represented themselves
as the incorporators and officers of Ricorn Philippine International Shipping
Lines, Inc.; that Ricorn is a recruitment agency for seamen; that Garcia is the
president, Botero is the vice-president, and Miraples (now at large) is the
treasurer. It was later discovered that Ricorn was never registered with the
Securities and Exchange Commission (SEC) and that it was never authorized
to recruit by the Philippine Overseas Employment Agency (POEA). Botero
and Garcia were convicted. Botero appealed.
In his defense, Botero averred that he was not an incorporator; that he

was merely an employee of Ricorn in charge of following up on their
documents.
Issue:
Whether or not Botero is a mere employee of Ricorn.
Ruling:
No. It was proven by evidence that he was introduced to the applicants

as the vice president of Ricorn. When he was receiving applicants, he was
receiving them behind a desk which has a nameplate representing his name
and his position as VP of Ricorn.
But Ricorn was never incorporated? How will this affect his liability in
the crime illegal recruitment? Under the law, if the offender is a corporation,
partnership, association or entity, the penalty shall be imposed upon the
officer or officers of the corporation, partnership, association or entity
responsible for violation. In this case, even if Ricorn was not incorporated,
Botero and his cohorts are estopped from denying liability as corporate
officers of Ricorn. Section 25 of the Corporation Code provides that “All
persons who assume to act as a corporation knowing it to be without authority
to do so shall be liable as general partners for all the debts, liabilities and
damages incurred or arising as a result thereof: Provided, however, That when
CORPORATION LAW
any such ostensible corporation is sued on any transaction entered by it as a

corporation or on any tort committed by it as such, it shall not be allowed to
use as a defense its lack of corporate personality.”
CORPORATION LAW
PART VII
ARTICLES OF INCORPORATION
128 Gov’t of the Philippin Islands vs. Manila Railroad Co.
130 Red Line Trans vs. Rural Transit
132 Uy Siuliong vs. Director of Commerce and Industry
135 Alhambra Cigar vs. Securities and Exchange Commission
136 Clavecilla Radio System vs. Antillon
138 Sy vs. Tyson Enterprises, Inc.
CORPORATION LAW
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, vs. THE

MANILA RAILROAD COMPANY and JOSE PAEZ
G.R. No. L-30646 January 30, 1929, JOHNSON, J.
Act No. 1510 is a special charter of the respondent company. It

constitutes a contract between the respondent company and the state; and the
state and the grantee of a charter are equally bound by its provisions. For the
state to impose an obligation or a duty upon the respondent company, which
is not expressly provided for in the charter (Act No. 1510), would amount to
a violation of said contract between the state and the respondent company
Facts:
The government of the Philippines entered into a contract with the

manila rail road company under a special charter act no. 1510. The
government of the Philippines is now demanding from the defendant that it
should provide and equip its telegraph poles with crosspieces to carry six
telegraph wires of the Government. This claim is based on the provisions of
section 84 of act No. 1459. Act No. 1459 is the General Corporation Law and
was adopted by the United States Philippine Commission on March 1, 1906.
(Vol. 5, Pub. Laws, pp. 224-268.) Section 84 of the said Act provides:
The railroad corporation shall establish along the whole length

of the road a telegraph line for the use of the railroad. The posts of this line
may be used for Government wires and shall be of sufficient length and
strength and equipped with sufficient crosspiece to carry the number of wires
which the Government may consider necessary for the public service. The
establishment, protection, and maintenance of the wires and stations
necessary for the public service shall be at the cost of the Government.
The defense of the defendant is that it is not bound by the provisions of

the corporation code because it has a charter of his own Act. No 1510. Under
that act the government is entitled to place on the poles of the company four
wires only.
Issue:
Whether or not the provisions of the corporation law apply between the
parties.
Ruling:
In as much as Act No. 1510 is the charter of Manila Railroad Company

and constitute a contract between it and the Government, it would seem that
the company is governed by its contract and not by the provisions of any
general law upon questions covered by said contract. From a reading of the
said charter or contract it would be seen that there is no indication that the
Government intended to impose upon said company any other conditions as
obligations not expressly found in said charter or contract. If that is true, then
CORPORATION LAW
certainly the Government cannot impose upon said company any conditions
or obligations found in any general law, which does not expressly modify said
contract.
Section 84 of the Corporation Law (Act No. 1459) was intended to

apply to all railways in the Philippine Islands which did not have a special
charter contract. Act No. 1510 applies only to the Manila Railroad Company,
one of the respondents, and being a special charter of said company, its
adoption had the effect of superseding the provisions of the general
Corporation Law which are applicable to railraods in general. The special
charter (Act No. 1510) had the effect of superseding the general Corporation
Law upon all matters covered by said special charter. Said Act, inasmuch as
it contained a special provision relating to the erection of telegraph and
telephone poles, and the number of wires which the Government might place
thereon, superseded the general law upon that question.
Act No. 1510 is a special charter of the respondent company. It

constitutes a contract between the respondent company and the state; and the
state and the grantee of a charter are equally bound by its provisions. For the
state to impose an obligation or a duty upon the respondent company, which
is not expressly provided for in the charter (Act No. 1510), would amount to
a violation of said contract between the state and the respondent company.
The provisions of Act No. 1459 relating to the number of wires which the
Government may place upon the poles of the company are different and more
enerous than the provisions of the charter upon the same question. Therefore,
to allow the plaintiff to require of the respondent company a compliance with
said section 84 of Act No. 1459, would be to require of the respondent
company and the performance of an obligation which is not imposed upon it
by its charter. The charter of a corporation is a contract between three parties:
(a) it is a contract between the state and the corporation to which the charter
is granted; (b) it is a contact between the stockholders and the state and (c) it
is also a contract between the corporation and its stockholders. (Cook on
Corporations, vol. 2, sec. 494 and cases cited.)
The question is not whether Act No. 1510 repealed Act No. 1459; but
whether, after the adoption of Act No. 1510, the respondents are obliged to
comply with the special provision above mentioned, contained in Act No.
1459. We must answer that question in the native. Both laws are still in force,
unless otherwise repealed. Act No. 1510 is applicable to respondents upon the
question before us, while Act No. 1459 is not applicable.
The petitioner, in view of all the foregoing facts and the law applicable
thereto, has not shown itself entitled to the remedy prayed for. The prayer of
the petition must, therefore, be denied. And without any finding as to costs, it
is so ordered.
CORPORATION LAW
RED LINE TRANSPORTATION CO., petitioner-appellant, vs.

RURAL TRANSIT CO., LTD., respondent-appellee.
GR No. 41570, Sept. 6, 1934, BUTTE, J.
A corporation has the power "of succession by its corporate name." It

is essential to its existence and cannot change its name except in the manner
provided by the statute. By that name alone is it authorized to transact
business.
Facts:
This is a petition for review of an order of the Public Service
Commission granting to the Rural Transit Company, Ltd., a certificate of
public convenience to operate a transportation service between Ilagan in the
Province of Isabela and Tuguegarao in the Province of Cagayan, and
additional trips in its existing express service between Manila Tuguegarao.
On June 4, 1932, Rural Transit filed an application for certification of

a new service between Tuguegarao and Ilagan with the Public Company
Service Commission (PSC), since the present service is not sufficient. Rural
Transit further stated that it is a holder of a certificate of public convenience
to operate a passenger bus service between Manila and Tuguegarao.
Red Line opposed said application, arguing that they already hold a
certificate of public convenience for Tuguegarao and Ilagan, and is rendering
adequate service. They also argued that granting Rural Transit’s application
would constitute a ruinous competition over said route.
On Dec. 21, 1932, Public Service Commission approved Rural

Transit’s application, with the condition that "all the other terms and
conditions of the various certificates of public convenience of the herein
applicant and herein incorporated are made a part hereof."
A motion for rehearing and reconsideration was filed by Red Line since
Rural Transit has a pending application before the Court of First Instance for
voluntary dissolution of the corporation. A motion for postponement was filed
by Rural Transit as verified by M. Olsen who swears "that he was the secretary
of the Rural Transit Company, Ltd. During the hearing before the Public
Service Commission, the petition for dissolution and the CFI’s decision
decreeing the dissolution of Rural Transit were admitted without objection
At the trial of this case before the Public Service Commission an issue
was raised as to who was the real party in interest making the application,
whether the Rural Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using name of the Rural
Transit Company, Ltd., as a trade name. However, PSC granted Rural
Transit’s application for certificate of public convenience and ordered that a
certificate be issued on its name.
CORPORATION LAW
· PSC relied on a Resolution in case No. 23217, authorizing Bachrach

Motor to continue using Rural Transit’s name as its tradename in all its
applications and petitions to be filed before the PSC. Said resolution was
given a retroactive effect as of the date of filing of the application or April 30,
1930
Issue:
Can the Public Service Commission authorize a corporation to assume

the name of another corporation as a trade name?
Ruling:
No. The Rural Transit Company, Ltd., and the Bachrach Motor Co.,
Inc., are Philippine corporations and the very law of their creation and
continued existence requires each to adopt and certify a distinctive name. The
incorporators "constitute a body politic and corporate under the name stated
in the certificate."
A corporation has the power "of succession by its corporate name." It

is essential to its existence and cannot change its name except in the manner
provided by the statute. By that name alone is it authorized to transact
business.
The law gives a corporation no express or implied authority to assume

another name that is unappropriated: still less that of another corporation,
which is expressly set apart for it and protected by the law. If any corporation
could assume at pleasure as an unregistered trade name the name of another
corporation, this practice would result in confusion and open the door to
frauds and evasions and difficulties of administration and supervision.
In this case, the order of the commission authorizing the Bachrach

Motor Co., Incorporated, to assume the name of the Rural Transit Co., Ltd.
likewise incorporated, as its trade name being void. Accepting the order of
December 21, 1932, at its face as granting a certificate of public convenience
to the applicant Rural Transit Co., Ltd., the said order last mentioned is set
aside and vacated on the ground that the Rural Transit Company, Ltd., is not
the real party in interest and its application was fictitious.
CORPORATION LAW
UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG,

EDILBERTO CALIXTO and UY CHO YEE, vs. THE DIRECTOR OF
COMMERCE AND INDUSTRY
G.R. No. L-15429 December 1, 1919, JOHNSON, J.
A corporation may be organized under the laws of the Philippine

Islands for mercantile purposes, and to engage in such incidental business as
may be necessary and advisable to give effect to, and aid in, the successful
operation and conduct of the principal business
Facts:
The petitioners herein, who had been members of partnership of

"Siuliong y Cia.," desired to dissolve said partnership and to form a
corporation composed of the same persons as incorporators, to be known as
"Siulong y Compañia, Incorporada;" The purpose of said corporation,
"Siuliong y Cia., Inc.," is (a) to acquire the business of the partnership
theretofore known as Siuliong & Co., and (b) to continue said business with
some of its objects or purposes.
That an examination of the articles of incorporation of the said

"Siuliong y Compañia, Incorporada" (Exhibit A) shows that it is to be
organized for the following purposes: (a) The purchase and sale, importation
and exportation, of the products of the country as well as of foreign countries;
(b) To discount promissory notes, bills of exchange, and other negotiable
instruments; (c) The purchase and sale of bills of exchange, bonds, stocks, or
"participaciones de sociedades mercantiles e industriales [joint account of
mercantile and industrial associations]," and of all classes of mercantile
documents; "comisiones [commissions];" "consignaciones [consignments];"
(d) To act as agents for life, marine and fire insurance companies; lawphi1.net
(e) To purchase and sell boats of all classes "y fletamento de los mismos [and
charterage of same];" and (f) To purchase and sell industrial and mercantile
establishments.
While the articles of incorporation of "Siuliong y Cia., Inc." states that

its purpose is to acquire and continue the business, with some of its objects or
purposes, of Siuliong & Co., it will be found that some of the purposes of the
original partnership of "Siuliong y Cia." have been omitted. For example, the
articles of partnership of "Siuliong y Cia." gave said company the authority to
purchase and sell all classes "de fincas rusticas y urbanas [of rural and city
real estate]" as well as the right to act as agents for the establishment of any
other business which it might esteem convenient for the interests of "la
compañia [the company]." (Exhibit C).
The respondent contends (a) that the proposed articles of incorporation

presented for file and registry permitted the petitioners to engage in a business
which had for its end more than one purpose; (b) that it permitted the
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petitioners to engage in the banking business, and (c) to deal in real estate, in
violation of the Act of Congress of July 1, 1902.
Issue:
Whether or not the proposed articles of incorporation of "Siuliong y

Cia., Inc.," permits it to engage in a business with more than one purpose.
Ruling:
If upon an examination of the articles of incorporation we find that its

purpose is to engage in a business with but one principal purpose, then that
contention of the respondent will have been answered and it will be
unnecessary to discuss at length the question whether or not a corporation
organized for commercial purposes in the Philippine Islands can be organized
for more than one purpose.
The attorney for the respondent, at the time of the argument, admitted
in open court that corporations in the Philippine Islands might be organized
for both the "importation and exportation" of merchandise and that there
might be no relation between the kind of merchandise imported with the class
of merchandise exported.
Referring again to be proposed articles of incorporation, it will be seen

that the only purpose of said corporation are those enumerated in
subparagraphs (a), (b), (c), (d), (e) and ( f ) of paragraph 4 above. While said
articles of incorporation are somewhat loosely drawn, it is clear from a reading
of the same that the principal purpose of said corporation is to engage in a
mercantile business, with the power to do and perform the particular acts
enumerated in said subparagraphs above referred to.
Without discussing or deciding at this time whether a corporation

organized under the laws of the Philippine Islands may be organized for more
than one purpose, we are of the opinion and so decide that a corporation may
be organized under the laws of the Philippine Islands for mercantile purposes,
and to engage in such incidental business as may be necessary and advisable
to give effect to, and aid in, the successful operation and conduct of the
principal business. In the present case we are fully persuaded that all of the
power and authority included in the articles of incorporation of "Siuliong y
Cia., Inc.," enumerated above in paragraph 4 (Exhibit A) are only incidental
to the principal purpose of said proposed incorporation, to wit: "mercantile
business."
While the court arrived at the conclusion that the proposed articles of
incorporation do not authorize the petitioners to engage in a business with
more than one purpose, they do not mean to be understood as having decided
that corporations under the laws of the Philippine Islands may not engage in
a business with more than one purpose. Such an interpretation might work a
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great injustice to corporations organized under the Philippine laws. Such an

interpretation would give foreign corporations, which are permitted to be
registered under the laws here and which may be organized for more than one
purpose, a great advantage over domestic corporations. Considering the
particular purposes and objects of the proposed articles of incorporation which
are specially enumerated above, we are of the opinion that it contains nothing
which violates in the slightest degree any of the provisions of the laws of the
Philippine Islands, and the petitioners are, therefore, entitled to have such
articles of incorporation filed and registered as prayed for by them and to have
issued to them a certificate under the seal of the office of the respondent,
setting forth that such articles of incorporation have been duly filed in his
office.
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ALHAMBRA CIGAR & CIGARETTE MANUFACTURING

COMPANY, INC., petitioner, vs. SECURITIES & EXCHANGE
COMMISSION, respondent.
G.R. No. L-23606 July 29, 1968, SANCHEZ, J
When a corporation is liquidating pursuant to the statutory period of

three years to liquidate, it is only allowed to continue for the purpose of final
closure of its business and no other purposes. In fact, within that period, the
corporation is enjoined from “continuing the business for which it was
established”
Facts:
On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing

Company, Inc. was incorporated. Its lifespan was for 50 years so on January
15, 1962, it expired. Thereafter, its Board authorized its liquidation. Under the
prevailing law, Alhambra has 3 years to liquidate. In 1963, while Alhambra
was liquidating, Republic Act 3531 was enacted. It amended Section 18 of the
Corporation Law; it empowered domestic private corporations to extend their
corporate life beyond the period fixed by the articles of incorporation for a
term not to exceed fifty years in any one instance. Previous to Republic Act
3531, the maximum non-extendible term of such corporations was fifty years.
Alhambra now amended its articles of incorporation to extend its

lifespan for another 50 years. The Securities and Exchange Commission
(SEC) denied the amended articles of incorporation.
Issue:
Whether or not a corporation under liquidation may still amend its

articles of incorporation to extend its lifespan.
Ruling:
No. Alhambra cannot avail of the new law because it has already
expired at the time of its passage. When a corporation is liquidating pursuant
to the statutory period of three years to liquidate, it is only allowed to continue
for the purpose of final closure of its business and no other purposes. In fact,
within that period, the corporation is enjoined from “continuing the business
for which it was established”. Hence, Alhambra’s board cannot validly amend
its articles of incorporation to extend its lifespan.
CORPORATION LAW
CLAVECILLIA RADIO SYSTEM VS. HON. AGUSTIN ANTILLON

G.R. No. L-22238, February 18, 1967, REGALA, J.
The residence of a corporation is the place where its principal office is

established.
Facts:
On June 22, 1963, the New Cagayan Grocery filed a complaint against the
Clavecilla Radio System alleging that on March 12, 1963, the following
message, addressed to the former, was filed at the latter's Bacolod Branch
Office for transmittal thru its branch office at Cagayan de Oro:
NECAGRO CAGAYAN DE ORO (CLAVECILLA)

REURTEL WASHED NOT AVAILABLE REFINED TWENTY
FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG
The Cagayan de Oro branch office having received the said message
omitted, in delivering the same to the New Cagayan Grocery, the word "NOT"
between the words "WASHED" and "AVAILABLE," thus changing entirely
the contents and purport of the same and causing the said addressee to suffer
damages. After service of summons, the Clavecilla Radio System filed a
motion to dismiss the complaint on the grounds that it states no cause of action
and that the venue is improperly laid. The motion was denied.
The Clavecilla Radio System filed a petition for prohibition with

preliminary injunction praying that the respondent be enjoined from further
proceeding with the case on the ground of improper venue. The lower court
dismissed the case. It held that the Clavecilla Radio System may be sued either
in Manila where it has its principal office or in Cagayan de Oro City where it
may be served, as in fact it was served, with summons through the Manager
of its branch office in said city.
Issue:
Whether or not the suit against Clavecilla should be filed in Manila where
it holds its principal office.
Ruling:
YES. It is clear that the case for damages filed with the city court is based
upon tort and not upon a written contract. Section 1 of Rule 4 of the New
Rules of Court, governing venue of actions in inferior courts, provides in its
paragraph (b) (3) that when "the action is not upon a written contract, then in
the municipality where the defendant or any of the defendants resides or may
be served with summons."
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Settled is the principle in corporation law that the residence of a

corporation is the place where its principal office is established. Since it is not
disputed that the Clavecilla Radio System has its principal office in Manila, it
follows that the suit against it may properly be filed in the City of Manila.
The appellee maintains that with the filing of the action in Cagayan de Oro
City, venue was properly laid on the principle that the appellant may also be
served with summons in that city where it maintains a branch office. However,
the fact that it maintains branch offices in some parts of the country does not
mean that it can be sued in any of these places. To allow an action to be
instituted in any place where a corporate entity has its branch offices would
create confusion and work untold inconvenience to the corporation.
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JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION VS.

TYSON ENTERPRISES, INC., JUDGE GREGORIO PINEDA and CA
G.R. No. L-56763 December 15, 1982,
The residence of its president is not the residence of the corporation because
a corporation has a personality separate and distinct from that of its officers
and stockholders.
Facts:
This is a case about the venue of a collection suit. Tyson Enterprises, Inc.
filed against John Sy and Universal Parts Supply Corporation in the CFI of
Rizal, Pasig Branch XXI, a complaint for the collection of P288,534.58 plus
interest, attorney's fees and litigation expenses. It is alleged in the complaint
that John Sy, doing business under the trade name, Universal Parts Supply, is
a resident of Fuentebella Subdivision, Bacolod City and that his co-defendant,
Universal Parts Supply Corporation, allegedly controlled by Sy, is doing
business in Bacolod City. Curiously enough, there is no allegation in the
complaint as to the office or place of business of plaintiff Tyson Enterprises,
Inc., a firm actually doing business at 1024 Magdalena, now G. Masangkay
Street, Binondo, Manila.
What is alleged is the postal address or residence of Dominador Ti, the

president and general manager of plaintiff firm, which is at 26 Xavier Street,
Greenhills Subdivision, San Juan, Rizal. The evident purpose of alleging that
address and not mentioning the place of business of plaintiff firm was to
justify the filing of the suit in Pasig, Rizal instead of in Manila.
Defendant Sy and Universal Parts Supply Corporation filed a motion to

dismiss on the ground of improper venue. They invoked the provision of
section 2(b), Rule 4 of the Rules of Court that personal actions "may be
commenced and tried where the defendant or any of the defendants resides or
may be found, or where the plaintiffs or any of the plaintiffs resides, at the
election of the plaintiff." To strengthen that ground, they also cited the
stipulation in the sales invoice that "the parties expressly submit to the
jurisdiction of the Courts of the City of Manila for any legal action arising out
of" the transaction which stipulation is quoted in paragraph 4 of plaintiff's
complaint.
The plaintiff opposed the motion to dismiss on the ground that the
defendants had waived the objection based on improper venue because they
had previously filed a motion for a bill of particulars which was not granted.
The trial court denied the motion to dismiss on the ground that by filing a
motion for a bill of particulars the defendants waived their objection to the
venue. The Appellate Court dismissed the petition. It ruled that the parties did
not intend Manila as the exclusive venue of the actions arising under their
transactions and that since the action was filed in Pasig, which is near Manila,
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no useful purpose would be served by dismissing the same and ordering that
it be filed in Manila. Hence, this appeal.
Issue:
Whether or not a plaintiff-corporation may file a civil case, not in its

business address nor the business address/residence of the defendant but in
the place of residence of its incorporators/officers.
Ruling:
NO. There is no question that the venue was improperly laid in this case.
The place of business of plaintiff Tyson Enterprises, Inc., which for purposes
of venue is considered as its residence, is in Manila and not in Rizal. The
residence of its president is not the residence of the corporation because a
corporation has a personality separate and distinct from that of its officers and
stockholders.
Hence, venue is improperly laid in this case. The trial court of Pasig has
no jurisdiction.
CORPORATION LAW
PART VIII
DIRECTORS, TRUSTEES AND OFFICERS

140 Gamboa vs. Victoriano
142 Angeles vs. Santos
144 The Board of Liquidators vs. Heirs of Maximo M. Kalaw
152 Gokongwei, Jr. vs. Securities and Exchange Commission
155 Lee vs. Court of Appeals
158 Premium Marble Resources vs. Court of Appeals
160 Grace Christian High School vs. Court of Appeals
162 Roxas vs. Dela Rosa
164 Lopez vs. Ericta
166 Western Institute of Technology, Inc. vs. Salas
168 Gurrea vs. Lezama
170 Dy vs. National Labor Relations Commission
172 De Rossi vs. National Labor Relations Commission
174 People’s Aircargo vs. Court of Appeals
177 Torres, Jr. vs. Court of Appeals
179 Esguerra vs. Court of Appeals
183 Pabon vs. National Labor Relations Commission
185 Pabalan vs. National Labor Relations Commission
187 Uichico vs. National Labor Relations Commission
CORPORATION LAW
RICARDO L. GAMBOA, LYDIA R. GAMBOA, HONORIO DE LA

RAMA, EDUARDO DE LA RAMA, and the HEIRS OF MERCEDES
DE LA RAMA-BORROMEO, Petitioners, v. HON. OSCAR R.
VICTORIANO, BENJAMIN LOPUE, SR., BENJAMIN LOPUE, JR.,
LEONITO LOPUE, and LUISA U. DACLES, Respondents.
G.R. No. L-40620, May 5, 1979, CONCEPCION, JR., J
Courts have jurisdiction over an action by a stockholder to nullify

contracts intra vires entered into by the board of directors if such contracts
are unconscionable and oppressive as to amount to a wanton destruction of
the rights of the minority.

behalf of the corporation wherein he holds stock in order to protect and
vindicate corporate rights, whenever the officials of the corporation refuses
to sue, or are the ones to be used or hold the control of the corporation. In
such actions, the suing stockholders is regarded as a nominal party, with the
corporation as the real party in interest. Thus, a derivative suit will not lie
where stockholders are vindicating their own individual interest or prejudice,
and not that of the corporation.
Facts:
Plaintiffs filed a complaint to nullify the sale of unissued 823 shares of

stock to defendants on the ground that such sale violated plaintiffs’ pre-
emptive rights and was made without the approval of the board of directors
representing 2/3 of the outstanding capital stock. After the issuance of an
injunction, three of the defendants entered into a compromise agreement
waiving their rights over the questioned shares of stock in favor of plaintiffs.
The agreement, however, provided that the same shall not be considered as a
waiver or abandonment of plaintiffs’ claim against the other defendants.
Defendants, thereafter, moved to dismiss on the ground that plaintiffs’ cause
of action had been abandoned, and that they are estopped from prosecuting
the case since they have in effect, acknowledged the validity of the issuances
of the disputed shares.
Defendants also claimed that respondent court had no jurisdiction to

interfere with the management of the corporation by the board of directors.
The trial court denied the motion. Hence, this petition for certiorari.
Issue:
Whether or not the respondent court has jurisdiction to interfere with the
management of the corporation by the board of directors, and the enactment
of a resolution by the defendants, as members of the board of directors of the
corporation, allowing the sale of the 823 shares of stock to the defendants.
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Ruling:
YES. The well-known rule is that courts cannot undertake to control the
discretion of the board of directors about administrative matters as to which
they have legitimate power of action and contracts intra vires entered into by
the board of directors are binding upon the corporation and courts will not
interfere unless such contracts are so unconscionable and oppressive as to
amount to a wanton destruction of the rights of the minority.
In the instant case, the plaintiffs aver that the defendants have concluded
a transaction among themselves as will result to serious injury to the interests
of the plaintiffs, so that the trial court has jurisdiction over the case.
The petitioners further contend that the proper remedy of the plaintiffs
would be to institute a derivative suit against the petitioners in the name of the
corporation in order to secure a binding relief after exhausting all the possible
remedies available within the corporation.

behalf of the corporation wherein he holds stock in order to protect or
vindicate corporate rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued or hold the control of the corporation. In such
actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. In the case at bar, however, the
plaintiffs are alleging and vindicating their own individual interests or
prejudice, and not that of the corporation. At any rate, it is yet too early in the
proceedings since the issues have not been joined.
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HIGINIO ANGELES, JOSE E. LARA and AGUEDO BERNABE,

as stockholders for an in behalf and for the benefit of the corporation,
Parañaque Rice Mill, Inc. and the other stockholders who may desire to
join, plaintiffs-appellees,
vs.
TEODORICO B. SANTOS, ESTANISLAO MAYUGA, APOLONIO
PASCUAL, and BASILISA RODRIGUEZ,defendant-appellants.
G.R. No. L-43413, August 31, 1937, LAUREL, J.
Where a majority of the board of directors wastes or dissipates the funds

of the corporation or fraudulently disposes of its properties, or performs ultra
vires acts, the court, in the exercise of its equity jurisdiction, and upon
showing that intracorporate remedy is unavailing, will entertain a suit filed
by the minority members of the board of directors.
Facts:
The Parties are all stockholders and member of the board of directors of
the Parañaque Rice Mill, Inc. Angeles et al. (minority) filed a complaint as
stockholders, for and in behalf of the corporation, against Santos et al
(majority) in CFI Rizal.
The complaint alleged that: a special meeting was held in Feb. 1932 where
the Board formed an investigation committee (headed by the minority) to look
into the losses of the corporation in the year 1931, however, Santos et al
denied access to the properties, books and record of the corporation which
were in their possession. According to the by-laws, said documents should be
under the exclusive control and possession of the secretary- treasurer, not
Santos. Santos had appropriated to his own benefit properties, funds, and
income of the corporation in the sum of P10,000. He refused to sign over fully
paid-up shares of stock to Higinio Angeles so that he can control the affairs
of the corporation, that he refused to hold monthly meetings of the board, even
after due request, and Santos et al was disposing of the properties and records
of the corporation without authority from the board of directors or the
stockholders of the corporation and suspended Jose Lara from the office of
general manager to prevent any interference with or examination of his
arbitrary acts.
Preliminarily, Melchor de Lara was appointed by the court a receiver, then

upon opposition by Santos et al, Benigno Agco took his place. After trial, the
court appointed Emilio Figueroa as receiver of the corporation. Santos et al
filed and MR which was denied. After trial, the court ruled in favor of Angeles
et al, ordering Santos to render an accounting and pay whatever may be owing
to the corporation, sign over to Angeles the shares in the amount of 15,000,
and that a new set of board of directors be elected in a general meeting.
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Issues:
1. Whether or not Santos was liable to render an accounting and to pay

whatever may be owing to the corporation (YES)
2. WON it was proper for the court to order the removal of Santos et al from
their offices as members of the board of directors of the corporation. (NO)
Ruling:
Yes. There is ample evidence showing that Santos et al are guilty of breach
of trust as directors of the corporation. The board of directors of a corporation
is a creation of the stockholders and controls and directs the affairs of the
corporation by allegation of the stockholders. But the board of directors, or
the majority thereof, in drawing to themselves the power of the corporation,
occupies a position of trusteeship in relation to the minority of the stock in the
sense that the board should exercise good faith, care and diligence in the
administration of the affairs of the corporation and should protect not only the
interest of the majority but also those of the minority of the stock. Where a
majority of the board of directors wastes or dissipates the funds of the
corporation or fraudulently disposes of its properties, or performs ultra vires
acts, the court, in the exercise of its equity jurisdiction, and upon showing that
intracorporate remedy is unavailing, will entertain a suit filed by the minority
members of the board of directors.
Where corporate directors are guilty of a breach of trust — not of mere

error of judgment or abuse of discretion — and intracorporate remedy is futile
or useless, a stockholder may institute a suit in behalf of himself and other
stockholders and for the benefit of the corporation, to bring about a redress of
the wrong inflicted directly upon the corporation and indirectly upon the
stockholders.
The Corporation Law, in section 29 to 34, provide for the election and
removal of the directors of a corporation. It does not confer expressly upon
the court the power to remove a director of a corporation.
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THE BOARD OF LIQUIDATORS representing THE GOVERNMENT

OF THE REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE
DECEASED CASIMIRO GARCIA,3 and LEONOR MOLL, defendants-
appellees.
G.R. No. L-18805, August 14, 1967, SANCHEZ, J
A corporate officer, entrusted with the general management and control of its
business, has implied authority to make any contract or do any other act which
is necessary or appropriate to the conduct of the ordinary business of the
corporation.
Where similar acts have been approved by the directors as a matter of general
practice, custom, and policy, the general manager may bind the company
without formal authorization of the board of directors.
Ratification by a corporation of an unauthorized act or contract by its officers

or others relates back to the time of the act or contract ratified and is
equivalent to original authority. The theory of corporate ratification is
predicated on the right of a corporation to contract, and any ratification or
adoption is equivalent to a grant of prior authority.
Facts:
The National Coconut Corporation (NACOCO, for short) was chartered

as a non-profit governmental organization avowedly for the protection,
preservation and development of the coconut industry in the Philippines.
General manager and board chairman was Maximo M. Kalaw; defendants
Juan Bocar and Casimiro Garcia were members of the Board; defendant
Leonor Moll became director only on December 22, 1947. An unhappy chain
of events conspired to deter NACOCO from fulfilling some contracts entered.
Nature supervened. Four devastating typhoons visited the Philippines. The

Coconut trees throughout the country suffered extensive damage, the Copra
production decreased and prices spiraled. Warehouses were destroyed, cash
requirements doubled, deprivation of export facilities increased the time
necessary to accumulate shiploads of copra. Quick turnovers became
impossible, financing a problem. The buyers threatened damage suits. All the
settlements sum up to P1,343,274.52.
NACOCO, represented by the Board of Liquidators, seeks to recover the

above sum of P1,343,274.52 from general manager and board chairman
Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor
Moll. It charges Kalaw with negligence under Article 1902 of the old Civil
Code (now Article 2176, new Civil Code); and defendant board members,
including Kalaw, with bad faith and/or breach of trust for having approved the
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contracts without prior approval of the Board. The lower court came out with
a judgment dismissing the complaint. Hence, plaintiff appealed direct to this
Court. Plaintiff levelled a major attack on the lower court's holding that Kalaw
justifiedly entered into the controverted contracts without the prior approval
of the corporation's directorate. Plaintiff leans heavily on NACOCO's
corporate by-laws. Article IV (b), Chapter III thereof, recites, as amongst the
duties of the general manager, the obligation: "(b) To perform or execute on
behalf of the Corporation upon prior approval of the Board, all contracts
necessary and essential to the proper accomplishment for which the
Corporation was organized.
Issue:
Whether or not the acts of the respondent as General Manager without

prior approval of the Board are valid corporate acts.
Ruling:
A corporate officer "entrusted with the general management and control

of its business, has implied authority to make any contract or do any other act
which is necessary or appropriate to the conduct of the ordinary business of
the corporation. As such officer, "he may, without any special authority from
the Board of Directors perform all acts of an ordinary nature, which by usage
or necessity are incident to his office, and may bind the corporation by
contracts in matters arising in the usual course of business.
NACOCO was much more conservative than the exporters with big
capital. This short-selling was inevitable at the time in the light of other factors
such as availability of vessels, the quantity required before being accepted for
loading, the labor needed to prepare and sack the copra for market. To
NACOCO, forward sales were a necessity. Copra could not stay long in its
hands; it would lose weight, its value decrease. Above all, NACOCO's limited
funds necessitated a quick turnover. Copra contracts then had to be executed
on short notice — at times within twenty-four hours. To be appreciated then
is the difficulty of calling a formal meeting of the board. These previous
contract it should be stressed, were signed by Kalaw without prior
authority from the board. Said contracts were known all along to the board
members. Nothing was said by them. The aforesaid contracts stand to prove
one thing: Obviously, NACOCO board met the difficulties attendant to
forward sales by leaving the adoption of means to end, to the sound discretion
of NACOCO's general manager Maximo M. Kalaw.
Settled jurisprudence has it that where similar acts have been approved by
the directors as a matter of general practice, custom, and policy, the general
manager may bind the company without formal authorization of the board of
directors. In varying language, existence of such authority is established, by
proof of the course of business, the usage and practices of the company and
by the knowledge which the board of directors has, or must bepresumed to
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have, of acts and doings of its subordinates in and about the affairs of the
corporation.
In the case at bar, the practice of the corporation has been to allow its
general manager to negotiate and execute contracts in its copra trading
activities for and in NACOCO's behalf without prior board approval. If the
by-laws were to be literally followed, the board should give its stamp of prior
approval on all corporate contracts. But that board itself, by its acts and
through acquiescence, practically laid aside the by-law requirement of prior
approval. Under the given circumstances, the Kalaw contracts are valid
corporate acts.
CORPORATION LAW
ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F.

PEREA and SECURITIES & EXCHANGE COMMISSION, petitioners,
vs.
COURT OF APPEALS and IGLESIA NI CRISTO, respondents.
G.R. No. 117897, May 14, 1997, HERMOSISIMA, JR.
It is within the SEC’s jurisdiction to pass upon the issue as to who among the
different contending groups is the legitimate Board of Trustees.
Facts:
Petitioner IDP-Tamano Group alleges that sometime in 1971, Islamic
leaders of all Muslim major tribal groups in the Philippines headed by Dean
Cesar Adib Majul organized and incorporated the ISLAMIC
DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of
which is to establish an Islamic Center in Quezon City for the construction of
a Mosque (prayer place), Madrasah (Arabic School), and other religious
infrastructures so as to facilitate the effective practice of Islamic faith in the
area. Towards this end, the Libyan government donated money to the IDP to
purchase land at Culiat, Tandang Sora, Quezon City, to be used as a Center
for the Islamic populace. The land was covered by two titles both registered
in the name of IDP.
After the purchase of the land by the Libyan government in the name of
IDP, Martial Law was declared by the late President Ferdinand Marcos. Most
of the members of the 1971 Board of Trustees flew to the Middle East to
escape political persecution. Thereafter, two Muslim groups sprung, the
Carpizo Group, headed by Engineer Carpizo, and the Abbas Group, led by
Mrs. Tamano and Atty. Abbas. Both groups claimed to be the legitimate
IDP. Significantly, the SEC, in a suit between these two contending groups,
came out with a Decision in SEC Case No. 2687 declaring the election of both
the Carpizo Group and the Abbas Group as IDP board members to be null and
void.
Neither group, however, took the necessary steps prescribed by the SEC
in its Decision, and, thus, no valid election of the members of the Board of
Trustees of IDP was ever called. Although the Carpizo Group attempted to
submit a set of by-laws, the SEC found that, aside from Engineer Carpizo and
Atty. Buat, those who prepared and adopted the by-laws were not bona
fide members of the IDP, thus rendering the adoption of the by-laws likewise
null and void. Without having been properly elected as new members of the
Board of Trustees of IDP, the Carpizo Group caused to be signed an alleged
Board Resolution of the IDP, authorizing the sale of the subject two parcels
of land to the private respondent INC.
The petitioner 1971 IDP Board of Trustees headed by former

Senator Tamano, or the Tamano Group, filed a petition before the SEC,
docketed, seeking to declare null and void the Deed of Absolute Sale signed
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by the Carpizo Group and the INC since the group of Engineer Carpizo was
not the legitimate Board of Trustees of the IDP.
Private respondent INC opposed the motion arguing, inter alia, that the
issue sought to be litigated by way of intervention is an intra-corporate dispute
which falls under the jurisdiction of the SEC.
Issue:
Did the CA commit reversible error in setting aside that portion of the
SECs Decision which declared the sale of two (2) parcels of land in Quezon
City between the IDP-Carpizo Group and private respondent INC null and
void?
Ruling:
YES. There can be no question as to the authority of the SEC to pass upon
the issue as to who among the different contending groups is the legitimate
Board of Trustees of the IDP since this is a matter properly falling within the
original and exclusive jurisdiction of the SEC by virtue of Sections 3 and 5(c)
of Presidential Decree No. 902-A
If the SEC can declare who is the legitimate IDP Board, then by parity of
reasoning, it can also declare who is not the legitimate IDP Board. This is
precisely what the SEC did in SEC Case No. 4012 when it adjudged the
election of the Carpizo Group to the IDP Board of Trustees to be null and
void. By this ruling, the SEC in effect made the unequivocal finding that the
IDP-Carpizo Group is a bogus Board of Trustees. Consequently, the Carpizo
Group is bereft of any authority whatsoever to bind IDP in any kind of
transaction including the sale or disposition of IDP property.
Therefore, all acts carried out by the Carpizo Board, particularly the sale
of the Tandang Sora property, allegedly in the name of the IDP, have to be
struck down for having been done without the consent of the IDP thru a
legitimate Board of Trustees. Ineluctably, the subject sale is void and produces
no effect whatsoever.
The Carpizo Group-INC sale is further deemed null and void ab

initio because of the Carpizo Groups failure to comply with Section 40 of the
Corporation Code pertaining to the disposition of all or substantially all assets
of the corporation.
A sale or other disposition shall be deemed to cover substantially all the

corporate property and assets if thereby the corporation would be rendered
incapable of continuing the business or accomplishing the purpose for which
it was incorporated.
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PHILIPPINE STOCK EXCHANGE, INC. vs.

THE HONORABLE COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and PUERTO AZUL LAND, INC.
G.R. No. 125469, October 27, 1997, TORRES JR., J
The SEC is the government agency, under the direct general supervision of
the Office of the President, with the immense task of enforcing the Revised
Securities Act, and all other duties assigned to it by pertinent laws. Among its
enumerable functions, and one of the most important, is the supervision of all
corporations, partnerships or associations, who are grantees or primary
franchise and/or a license or permit issued by the government to operate in
the Philippines.
Facts:
The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had
sought to offer its shares to the public in order to raise funds allegedly to
develop its properties and pay its loans with several banking institutions. In
January, 1995, PALI was issued a permit to sell its shares to the public by the
Securities and Exchange Commission (SEC). To facilitate the trading of its
shares among investors, PALI sought to course the trading of its shares
through the Philippine Stock Exchange Inc. (PSEi), for which purpose it filed
with the said stock exchange an application to list its shares, with supporting
documents attached. Pending the approval of the PALI’s listing application, a
letter was received by PSE from the heirs of Ferdinand Marcos, the legal and
beneficial owner of certain properties forming part of the Puerto Azul Beach
Hotel and Resort Complex which PALI claims to be among its assets and that
the Ternate Development Corporation.
As a result, PSE denied PALI’s application which caused the latter to file
a complaint before the SEC. The SEC issued an order to PSE to grant listing
application of PALI on the ground that PALI have certificate of title over its
assets and properties and that PALI have complied with all the requirements
to enlist with PSE. Dissatisfied with this ruling, the PSE filed with the CA a
Petition for Review.
CA dismissed the petition ruling that, uled that the SEC had both
jurisdiction and authority to look into the decision of the petitioner PSE,
pursuant to Section 3[3] of the Revised Securities Act in relation to Section
6(j) and 6(m)[4] of P.D. No. 902-A, and Section 38(b)[5] of the Revised
Securities Act, and for the purpose of ensuring fair administration of the
exchange. Both as a corporation and as a stock exchange, the petitioner is
subject to public respondent’s jurisdiction, regulation and control. PSE then
submits that the CA erred in ruling that the SEC had authority to order the
PSE to list the shares of PALI in the stock exchange. Under presidential decree
No. 902-A, the powers of the SEC over stock exchanges are more limited as
compared to its authority over ordinary corporations. In connection with this,
the powers of the SEC over stock exchanges under the Revised Securities Act
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are specifically enumerated, and these do not include the power to reverse the
decisions of the stock exchange. This is in accord with the business judgment
rule whereby the SEC and the courts are barred from intruding into business
judgments of corporations, when the same are made in good faith.
Issue:
Whether or not it was in the exercise of its authority that the SEC reversed
the decision of the PSE to deny the application for listing in the stock
exchange of the private respondent PALI.
Ruling:
No. SEC is the entity with the primary say as to whether or not securities,
including shares of stock of a corporation, may be traded or not in the stock
exchange. This is in line with the SECs mission to ensure proper compliance
with the laws, such as the Revised Securities Act and to regulate the sale and
disposition of securities in the country.
The role of the SEC in our national economy cannot be minimized. The
legislature, through the Revised Securities Act, Presidential Decree No. 902-
A, and other pertinent laws, has entrusted to it the serious responsibility of
enforcing all laws affecting corporations and other forms of associations not
otherwise vested in some other government office. This is not to say, however,
that the PSEs management prerogatives are under the absolute control of the
SEC. The PSE is, after all, a corporation authorized by its corporate franchise
to engage in its proposed and duly approved business. One of the PSEs main
concerns, as such, is still the generation of profit for its
stockholders. Moreover, the PSE has all the rights pertaining to corporations,
including the right to sue and be sued, to hold property in its own name, to
enter (or not to enter) into contracts with third persons, and to perform all
other legal acts within its allocated express or implied powers.

under an assumed corporate name, and with a distinct legal personality. As to
its corporate and management decisions, therefore, the state will generally not
interfere with the same. Questions of policy and of management are left to the
honest decision of the officers and directors of a corporation, and the courts
are without authority to substitute their judgment for the judgment of the board
of directors. The board is the business manager of the corporation, and so long
as it acts in good faith, its orders are not reviewable by the courts. Thus,
notwithstanding the regulatory power of the SEC over the PSE, and the
resultant authority to reverse the PSEs decision in matters of application for
listing in the market, the SEC may exercise such power only if the PSEs
judgment is attended by bad faith. In board of Liquidators vs. Kalaw, it was
held that bad faith does not simply connote bad judgment or negligence. It
imports a dishonest purpose or some moral obliquity and conscious doing of
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wrong. It means a breach of a known duty through some motive or interest of

ill will, partaking of the nature of fraud.
It was reasonable for PSE, therefore, to exercise its judgment in the

manner it deems appropriate for its business identity, as long as no rights are
trampled upon, and public welfare is safeguarded. In this connection, it is
proper to observe that the concept of government absolutism in a thing of the
past, and should remain so. What is material is that the uncertainty of the
properties ownership and alienability exists, and this puts to question the
qualification of PALIs public offering. In sum, the Court finds that the SEC
had acted arbitrarily in arrogating unto itself the discretion of approving the
application for listing in the PSE of the private respondent PALI, since this is
a matter addressed to the sound discretion of the PSE, a corporate entity,
whose business judgments are respected in the absence of bad faith.
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JOHN GOKONGWEI, JR. vs.

SECURITIES AND EXCHANGE COMMISSION
G.R. No. L-45911, April 11, 1979, ANTONIO, J.
BOD/BOT may amend or repeal any by-law or adopt new by-laws.
The doctrine of "corporate opportunity" is a recognition that fiduciary

standards could not be upheld where the fiduciary was acting for two entities
with competing interests.
Facts:
John Gokongwei Jr., as stockholder of SanMiguel Corporation, filed with

the SEC a petitionfor "declaration of nullity of amended by-laws,cancellation
of certificate of filing of amended by-laws, injunction and damages with
prayer for a preliminary injunction" against the majority of the members of
the Board of Directors and San Miguel Corporation as an unwilling petitioner.
Gokongwei alleged that the Board amended the bylaws of the corporation,
prescribing additional qualifications for its directors, “that no person
shallqualify or be eligible for nomination if he isengaged in any business
which competes with that of the Corporation.” The board based their authority
to do so on aresolution of the stockholders. It was contended thataccording to
section 22 of the Corporation Law and Article VIII of the by-laws of the
corporation, the power to amend, modify, repeal or adopt new by-laws may
be delegated to the Board of Directors only by the affirmative vote of
stockholders representing not less than 2/3 of the subscribed and paid up
capital stock of the corporation, which 2/3 should have been computed on the
basis of the capitalization at the time of the amendment. Since the amendment
was based on 1961 authorization, Gokongwei contended that the Board acted
without authority and in usurpation of the power of the stockholders.
Gokongwei claimed that prior to thequestioned amendment, he had all the

qualifications to be a director of the corporation, being a substantial
stockholder thereof; that as a stockholder, Gokongwei had acquired rights
inherent in stock ownership, such as the rights to vote and to be voted upon in
the election of directors; and that in amending the by-laws, Soriano, et. al.
purposely provided for Gokongwei's disqualification and deprived him of his
vested right as afore-mentioned, hence the amended by-laws are null and void.
As additional causes of action, it was alleged that corporations have no

inherent power to disqualify a stockholder from being elected as a director
and, therefore, the questioned act is ultravires and void.
The SEC held that petitioner should be allowed to run as a director but that he
should not sit as such until SEC has decided on the validity of the by-laws in
dispute.
Issue:
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Whether or not the amended by-laws of SMC disqualifying a competitor

from nomination or election to the Board of Directors of SMC are valid and
reasonable.
Ruling:
Yes. The Amendments are valid. The validity or reasonableness of a by-

law of a corporation is purely a question of law. Petitioner claims that the
amended by-laws are invalid and unreasonable because they were tailored to
suppress the minority and prevent them from having representation in the
Board", at the same time depriving petitioner of his "vested right" to be voted
for and to vote for a person of his choice as director. Any person "who buys
stock in a corporation does so with the knowledge that its affairs are
dominated by a majority of the stockholders and that he impliedly contracts
that the will of the majority shall govern in all matters within the limits of the
act of incorporation and lawfully enacted by-laws and not forbidden by law."
Pursuant to section 18 of the Corporation Law, any corporation may

amend its articles of incorporation by a vote or written assent of the
stockholders representing at least two-thirds of the subscribed capital stock of
the corporation. If the amendment changes, diminishes or restricts the rights
of the existing shareholders, then the dissenting minority has only one right,
viz.: "to object thereto in writing and demand payment for his share."
Under section 22 of the same law, the owners of the majority of the
subscribed capital stock may amend or repeal any by-law or adopt new by-
laws. It cannot be said, therefore, that petitioner has a vested right to be elected
director, in the face of the fact that the law at the time such right as stockholder
was acquired contained the prescription that the corporate charter and the by-
law shall be subject to amendment, alteration and modification. Although in
the strict and technical sense, directors of a private corporation are not
regarded as trustees, there cannot be any doubt that their character is that of a
fiduciary insofar as the corporation and the stockholders as a body are
concerned. As agents entrusted with the management of the corporation, they
should act for the collective benefit of the stockholders.
It is a settled state law in the United States that corporations have the
power to make by-laws declaring a person employed in the service of a rival
company to be ineligible for the corporation's Board of Directors. ". . . (A)n
amendment which renders ineligible, or if elected, subjects to removal, a
director if he be also a director in a corporation whose business is in
competition with or is antagonistic to the other corporation is valid." This is
based upon the principle that where the director is so employed in the service
of a rival company, he cannot serve both, but must betray one or the other.
Such an amendment "advances the benefit of the corporation and is good."
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The doctrine of "corporate opportunity" is precisely a recognition that

fiduciary standards could not be upheld where the fiduciary was acting for
two entities with competing interests. It is not denied that a member of the
Board of Directors of the San Miguel Corporation has access to sensitive and
highly confidential information. It is obviously to prevent the creation of an
opportunity for an officer or director of San Miguel Corporation, who is also
the officer or owner of a competing corporation, from taking advantage of the
information which he acquires as director to promote his individual or
corporate interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws was made.
Certainly, where two corporations are competitive in a substantial sense, it
would seem improbable, if not impossible, for the director, if he were to
discharge effectively his duty, to satisfy his loyalty to both corporations and
place the performance of his corporation duties above his personal concerns.
In the absence of any legal prohibition or overriding public policy, wide

latitude may be accorded to the corporation in adopting measures to protect
legitimate corporate interests. The test must be whether the business does in
fact compete, not whether it is capable of an indirect and highly unsubstantial
duplication of an isolated or non-characteristic activity.
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RAMON C. LEE and ANTONIO DM. LACDAO vs.

THE HON. COURT OF APPEALS, SACOBA MANUFACTURING
CORP., PABLO GONZALES, JR. and THOMAS GONZALES
G.R. No. 93695, February 4, 1992, GUTIERREZ, JR., J.
Mere beneficial ownership in voting trust agreement no longer

qualifies.
Facts:
A complaint for a sum of money was filed by the International Corporate

Bank, Inc. against the private respondents who, in turn, filed a third party
complaint against ALFA and the petitioners. The petitioners filed a motion to
dismiss the third party complaint which the RTC of Makati denied. The trial
court issued an order requiring the issuance of an alias summons upon ALFA
through the DBP as a consequence of the petitioner's letter informing the court
that the summons for ALFA was erroneously served upon them considering
that the management of ALFA had been transferred to the DBP. In a
manifestation, the DBP claimed that it was not authorized to receive summons
on behalf of ALFA since the DBP had not taken over the company which has
a separate and distinct corporate personality and existence.
The private respondents argued that the voting trust agreement did not
divest the petitioners of their positions as president and executive vice-
president of ALFA so that service of summons upon ALFA through the
petitioners as corporate officers was proper.
The trial court upheld the validity of the service of summons on ALFA
through the petitioners, thus, denying the latter's motion for reconsideration
and requiring ALFA to file its answer through the petitioners as its corporate
officers. A second motion for reconsideration was filed by the petitioners
reiterating their stand that by virtue of the voting trust agreement they ceased
to be officers and directors of ALFA, hence, they could no longer receive
summons or any court processes for or on behalf of ALFA. In support of their
second motion for reconsideration, the petitioners attached thereto a copy of
the voting trust agreement between all the stockholders of ALFA (the
petitioners included), on the one hand, and the DBP, on the other hand,
whereby the management and control of ALFA became vested upon the DBP.
Issue:
Whether or not there was proper service of summons on ALFA, through

the petitioners as president and vice-president, allegedly, of the subject
corporation after the execution of a voting trust agreement between ALFA and
DBP.
Ruling:
No. A voting trust is defined in Ballentine's Law Dictionary as follows:
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(a) trust created by an agreement between a group of the stockholders of a

corporation and the trustee or by a group of identical agreements between
individual stockholders and a common trustee, whereby it is provided that for
a term of years, or for a period contingent upon a certain event, or until the
agreement is terminated, control over the stock owned by such stockholders,
either for certain purposes or for all purposes, is to be lodged in the trustee,
either with or without a reservation to the owners, or persons designated by
them, of the power to direct how such control shall be used. (98 ALR 2d. 379
sec. 1 [d]; 19 Am J 2d Corp. sec. 685).
Both under the old and the new Corporation Codes there is no dispute as
to the most immediate effect of a voting trust agreement on the status of a
stockholder who is a party to its execution — from legal titleholder or owner
of the shares subject of the voting trust agreement, he becomes the equitable
or beneficial owner. The penultimate question, therefore, is whether the
change in his status deprives the stockholder of the right to qualify as a
director under section 23 of the present Corporation Code which deletes
the phrase "in his own right." Section 30 of the old Code states that:
Every director must own in his own right at least one share of the capital
stock of the stock corporation of which he is a director, which stock shall
stand in his name on the books of the corporation. A director who ceases
to be the owner of at least one share of the capital stock of a stock
corporation of which is a director shall thereby cease to be a director . . .
(Emphasis supplied)
Under the old Corporation Code, the eligibility of a director, strictly

speaking, cannot be adversely affected by the simple act of such director being
a party to a voting trust agreement inasmuch as he remains owner (although
beneficial or equitable only) of the shares subject of the voting trust agreement
pursuant to which a transfer of the stockholder's shares in favor of the trustee
is required (section 36 of the old Corporation Code). No disqualification arises
by virtue of the phrase "in his own right" provided under the old Corporation
Code. With the omission of the phrase "in his own right" the election of
trustees and other persons who in fact are not beneficial owners of the shares
registered in their names on the books of the corporation becomes formally
legalized. Hence, this is a clear indication that in order to be eligible as a
director, what is material is the legal title to, not beneficial ownership of, the
stock as appearing on the books of the corporation.
The facts of this case show that the petitioners, by virtue of the voting trust
agreement executed in 1981 disposed of all their shares through assignment
and delivery in favor of the DBP, as trustee. Consequently, the petitioners
ceased to own at least one share standing in their names on the books of ALFA
as required under Section 23 of the new Corporation Code. They also ceased
to have anything to do with the management of the enterprise. The petitioners
ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP
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created vacancies in their respective positions as directors of ALFA.

Considering that the voting trust agreement between ALFA and the DBP
transferred legal ownership of the stock covered by the agreement to the DBP
as trustee, the latter became the stockholder of record with respect to the said
shares of stocks. In the absence of a showing that the DBP had caused to be
transferred in their names one share of stock for the purpose of qualifying as
directors of ALFA, the petitioners can no longer be deemed to have retained
their status as officers of ALFA which was the case before the execution of
the subject voting trust agreement. There appears to be no dispute from the
records that DBP has taken over full control and management of the firm.
There can be no reliance on the inference that the five-year period of the
voting trust agreement in question had lapsed in 1986 so that the legal title to
the stocks covered by the said voting trust agreement ipso facto reverted to
the petitioners as beneficial owners pursuant to the 6th paragraph of section
59 of the new Corporation Code which reads:
Unless expressly renewed, all rights granted in a voting trust agreement

shall automatically expire at the end of the agreed period, and the voting
trust certificate as well as the certificates of stock in the name of the
trustee or trustees shall thereby be deemed cancelled and new certificates
of stock shall be reissued in the name of the transferors.
Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:
Sec. 13. Service upon private domestic corporation or partnership. — If

the defendant is a corporation organized under the laws of the Philippines
or a partnership duly registered, service may be made on the president,
manager, secretary, cashier, agent or any of its directors.
It is a basic principle in Corporation Law that a corporation has a

personality separate and distinct from the officers or members who compose
it. Thus, the above rule on service of processes of a corporation enumerates
the representatives of a corporation who can validly receive court processes
on its behalf. Not every stockholder or officer can bind the corporation
considering the existence of a corporate entity separate from those who
compose it.
The petitioners in this case do not fall under any of the enumerated
officers. The service of summons upon ALFA, through the petitioners,
therefore, is not valid. To rule otherwise, as correctly argued by the
petitioners, will contravene the general principle that a corporation can only
be bound by such acts which are within the scope of the officer's or agent's
authority.
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PREMIUM MARBLE RESOURCES, INC.

vs. THE COURT OF APPEALS and INTERNATIONAL
CORPORATE BANK
G.R. No. 96551. November 4, 1996, TORRES, JR., J.
The power of the corporation to sue and be sued in any court is lodged with
the board of directors that exercises its corporate powers.
Facts:
Premium Marble Resources, Inc. (Premium for brevity), assisted by Atty.

Arnulfo Dumadag as counsel, filed an action for damages against
International Corporate Bank. Ayala Investment and Development
Corporation issued three (3) checks payable to the plaintiff and drawn against
Citibank. The former officers of the plaintiff corporation headed by Belen, Jr.,
without any authority whatsoever from the plaintiff deposited the above-
mentioned checks to the current account of his conduit corporation, Intervest
Merchant Finance (Intervest, for brevity) which the latter maintained with the
defendant bank. Although the checks were clearly payable to the plaintiff
corporation and crossed on their face and for payees account only, defendant
bank accepted the checks to be deposited to the current account of Intervest
and thereafter presented the same for collection from the drawee bank which
subsequently cleared the same thus allowing Intervest to make use of the funds
to the prejudice of the plaintiff.
The plaintiff has demanded upon the defendant to restitute the amount
representing the value of the checks but defendant refused and continue to
refuse to honor plaintiffs demands up to the present. As a result of the illegal
and irregular acts perpetrated by the defendant bank, the plaintiff was
damaged. Thus, Premium prayed that judgment be rendered ordering
defendant bank to pay the amount representing the value of the checks plus
interest, exemplary damages and attorneys fees. In its Answer International
Corporate Bank alleged, inter alia, that Premium has no
capacity/personality/authority to sue in this instance and the complaint should,
therefore, be dismissed for failure to state a cause of action.
Meantime, the same corporation, i.e., Premium, but this time represented
by Siguion Reyna, Montecillio and Ongsiako Law Office as counsel, filed a
motion to dismiss on the ground that the filing of the case was without
authority from its duly constituted board of directors as shown by the excerpt
of the minutes of the Premiums board of directors meeting. In its opposition
to the motion to dismiss, Premium thru Atty. Dumadag contended that the
persons who signed the board resolution namely Belen, Jr., Nograles & Reyes,
are not directors of the corporation and were allegedly former officers and
stockholders of Premium who were dismissed for various irregularities and
fraudulent acts; that Siguion Reyna Law office is the lawyer of Belen and
Nograles and not of Premium and that the Articles of Incorporation of
Premium shows that Belen, Nograles and Reyes are not majority stockholders.
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Issue:
Whether or not the filing of the case for damages against private
respondent was authorized by a duly constituted Board of Directors of the
petitioner corporation.
Ruling:
NO. We agree with the finding of public respondent Court of Appeals,

that in the absence of any board resolution from its board of directors the [sic]
authority to act for and in behalf of the corporation, the present action must
necessarily fail. The power of the corporation to sue and be sued in any court
is lodged with the board of directors that exercises its corporate powers. Thus,
the issue of authority and the invalidity of plaintiff-appellants subscription
which is still pending, is a matter that is also addressed, considering the
premises, to the sound judgment of the Securities & Exchange Commission.
By express mandate of the Corporation Code, all corporations duly organized
pursuant thereof are required to file with SEC the names, nationalities and
residence of the directors and officers elected. In determining whether the
filing of an action was authorized by the board, it is the list of directors in the
latest general information sheet as siled with the SEC which is controlling.
Sec. 26 of the Corporation Code provides, thus: Sec. 26. Report of election
of directors, trustees and officers. Within thirty (30) days after the election of
the directors, trustees and officers of the corporation, the secretary, or any
other officer of the corporation, shall submit to the Securities
and Exchange Commission, the names, nationalities and residences of the
directors, trustees and officers elected. Xxx Evidently, the objective sought to
be achieved by Section 26 is to give the public information, under sanction of
oath of responsible officers, of the nature of business, financial condition and
operational status of the company together with information on its key officers
or managers so that those dealing with it and those who intend to do business
with it may know or have the means of knowing facts concerning the
corporations financial resources and business responsibility.[10] The claim,
therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al.,
are the incumbent officers of Premium has not been fully substantiated. In the
absence of an authority from the board of directors, no person, not even the
officers of the corporation, can validly bind the corporation.
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GRACE CHRISTIAN HIGHSCHOOL vs. COURT OF APPEALS

GR NO. 108905 OCTOBER 23, 1997 MENDOZA, J.:
The board of directors of corporations must be elected from among the

stockholders or members.
Facts:
Petitioner Grace Christian High School is an educational institution

offering preparatory, kindergarten and secondary courses at the Grace Village
in Quezon City. Private respondent Grace Village Association, Inc., on the
other hand, is an organization of lot and/or building owners, lessees and
residents at Grace Village, while private respondents Alejandro G. Beltran
and Ernesto L. Go were its president and chairman of the committee on
election when this suit was brought. As adopted in 1968, the by-laws of the
association provided in Article IV, as follows: The annual meeting of the
members of the Association shall be held on the first Sunday of January in
each calendar year at the principal office of the Association at 2:00 P.M.
where they shall elect by plurality vote and by secret balloting, the Board of
Directors, composed of eleven (11) members to serve for one (1) year until
their successors are duly elected and have qualified.
GVAI has an existing by-laws which was already in effect since 1968. But
in 1975, the board of directors made a draft amending the by-laws whereby
the representative of GCHS shall have a permanent seat in the 15-seat board.
The draft however was never presented to the general membership for
approval. But nevertheless, the representative of GCHS held a seat in the
board for 15 years until in 1990 when a proposal was made to the board to
reconsider the practice of allowing the GCHS representative in taking a
permanent seat. Thereafter, an election was scheduled for the 15 seat in the
board. GCHS opposed the election as it insists that the election should only
be for 14 directors because it has a permanent seat. GVAI argued that GCHS
claim has no basis because the 1975 proposed amendment was never ratified.
GCHS averred that it was ratified when it was allowed to take the seat for 15
years and as such its right has already vested.
Issue:
Whether or not provision in the by- laws allowing a director to hold the
position perpetually is valid.
Ruling:
NO. These provisions of the former and present corporation law leave no
room for doubt as to their meaning: the board of directors of corporations must
be elected from among the stockholders or members. There may be
corporations in which there are unelected members in the board but it is clear
that in the examples cited by petitioner the unelected members sit as ex
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officio members, i.e., by virtue of and for as long as they hold a particular
office. But in the case of petitioner, there is no reason at all for its
representative to be given a seat in the board. Nor does petitioner claim a right
to such seat by virtue of an office held. In fact it was not given such seat in
the beginning. It was only in 1975 that a proposed amendment to the by-laws
sought to give it one.
Since the provision in question is contrary to law, the fact that for fifteen
years it has not been questioned or challenged but, on the contrary, appears to
have been implemented by the members of the association cannot forestall a
later challenge to its validity. Neither can it attain validity through
acquiescence because, if it is contrary to law, it is beyond the power of the
members of the association to waive its invalidity. For that matter the
members of the association may have formally adopted the provision in
question, but their action would be of no avail because no provision of the by-
laws can be adopted if it is contrary to law.
It is probable that, in allowing petitioners representative to sit on the board,

the members of the association were not aware that this was contrary to law. It
is more accurate to say that the members merely tolerated petitioners
representative and tolerance cannot be considered ratification. Nor can
petitioner claim a vested right to sit in the board on the basis of
practice. Practice, no matter how long continued, cannot give rise to any
vested right if it is contrary to law. Even less tenable is petitioners claim that
its right is co-terminus with the existence of the association.
CORPORATION LAW
BALDOMERO ROXAS et. al. vs. MARIANO DE LA ROSA

G.R. No. L-26555. November 16, 1926. Street, J.
Under the law, directors of a corporation can only be removed from

office by a vote of the stockholders representing at least two-thirds of the
subscribed capital stock entitled to vote, while vacancies in the board, when
they exist, can be filled by a mere majority votes. Moreover, the law requires
that action is to be taken at a special meeting to remove the directors, such
purpose shall be indicated in the call.
Facts:
It appears that the Binalbagan Estate, Inc., is a corporation engaged in

the manufacture of raw sugar from canes.
The possessors of a majority of the shares of the Binalbagan Estate,

Inc., formed a voting trust composed of three members, namely, Salvador
Laguna, Segunda Monteblanco, and Arthur F. Fisher, as trustee. By the
document constituting this voting trust the trustees were authorized to
represent and vote the shares pertaining to their constituents. The total number
of outstanding shares of the corporation is somewhat over 5,500, while the
number of shares controlled by the voting trust is less than 3,000.
On February 1, 1926, the general annual meeting of the shareholders

took place which Mr. J. P. Heilbronn appeared as representative of the voting
trust, his authority being recognized by the holders of all the other shares
present at this meeting. Upon said occasion Heilbronn, by virtue of controlling
the majority of the shares, was able to nominate and elect a board of directors
to his own liking, without opposition from the minority.
Petitioners in their character as members of the voting trust, on August

2, 1926, caused the secretary of the Binalbagan Estate, Inc., to issue to the
shareholders a notice calling for a special general meeting of shareholders to
be held at 10 a. m., on August 16, 1926, "for the election of the board of
directors, for the amendment of the By-Laws, and for any other business that
can be dealt with in said meeting."
Issue:
Whether or not the petitioners can hold another shareholders meeting

for election of board of directors despite having no vacancies.
Ruling:
No. Vacancies in board or directors occur either due to death,

resignation, removal or otherwise. The law requires that for a director to be
removed, a vote of at least two-thirds of the subscribed capital stock is
CORPORATION LAW
necessary. In this case the voting trust is only majority of the shares and not
two-thirds majority.
Now, upon examining into the number of shares controlled by the

voting trust, it will be seen that, while the trust controls a majority of the stock,
it does not have a clear two-thirds majority. It was therefore impolitic for the
petitioners, in forcing the call for the meeting of August 16, to come out
frankly and say in the notice that one of the purpose of the meeting was to
remove the directors of the corporation from office. Instead, the call was
limited to the election of the board of directors, it being the evident intention
of the voting trust to elect a new board as if the directorate had been then
vacant.
It is instituted that there was some irregularity or another in the election

of the present directorate. We see nothing upon which this suggestion can be
safely planted; And at any rate the present board of directors are de
facto incumbents of the office whose acts will be valid until they shall be
lawfully removed from the office or cease from the discharge of their
functions. In this case it is not necessary for us to agitate ourselves over the
question whether the respondent judge properly exercised his judicial
discretion in granting the order complained of. If suffices to know that in
making the order he was acting within the limits of his judicial powers.
CORPORATION LAW
SALVADOR P. LOPEZ vs. HON. VICENTE ERICTA

G.R. No. L-32991 June 29, 1972. Makalintal, J.
In a board meeting, an abstention is presumed to be counted as an

affirmative vote insofar as it may be construed as an acquiescence in the
action of those who voted affirmatively; but such presumption, being merely
prima facie would not hold in the face of clear evidence to the contrary
Facts:
The first such appointment was extended on April 27, 1970, "effective
May 1, 1970 until April 30, 1971, unless sooner terminated and subject to the
approval of the Board of Regents and to pertinent University regulations."
Pursuant thereto Dr. Blanco assumed office as ad interim Dean on May 1,
1970.
The Board of Regents met on May 26, 1970, and President Lopez
submitted to it the ad interim appointment of Dr. Blanco for reconsideration.
The minutes of that meeting disclose that "the Board voted to defer action on
the matter in view of the objections cited by Regent Kalaw based on the
petition against the appointment, addressed to the Board, from a majority of
the faculty and from a number of alumni Dr. Blanco's appointment had lapsed.
On May 26, 1970, President Lopez extended another ad interim

appointment to her, effective from May 26, 1970 to April 30, 1971, with the
same conditions as the first. However, such ad interim appointment had not
been confirmed by the Board of Regents. Due to the following votes: 5-yes,
3-no and 4-abstain.
On August 18, 1970 Dr. Blanco wrote the President of the University,
protesting the appointment of Oseas A. del Rosario as Officer-in-Charge of
the College of Education. Neither communication having elicited any official
reply, Dr. Blanco went to the Court of First Instance of Quezon City on a
petition for certiorari and prohibition with preliminary injunction.
Issue:
Whether or not respondent Dr. Consuelo S. Blanco was duly elected

Dean of the College of Education, University of the Philippines, in the
meeting of the Board of Regents on July 9, 1970.
Ruling:
No. The votes of abstention, viewed in their setting, can in no way be

construed as votes for confirmation of the appointment. There can be no doubt
whatsoever as to the decision and recommendation of the three members of
the Personnel Committee: it was for rejection of the appointment. No
inference can be drawn from this that the members of the Personnel
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Committee, by their abstention, intended to acquiesce in the action taken by

those who voted affirmatively. Neither, for that matter, can such inference be
drawn from the abstention that he was abstaining because he was not then
ready to make a decision.
Dr. Blanco was clearly not the choice of a majority of the members of
the Board of Regents, as unequivocally demonstrated by the transcript of the
proceedings. This fact cannot be ignored simply because the Chairman, in
submitting the question to the actual vote, did not frame it as accurately as the
preceding discussion called for, such that two of the Regents present (Silva
and Kalaw) had to make some kind of clarification.
CORPORATION LAW
WESTERN INSTITUTE OF TECHNOLOGY, INC.

v. RICARDO SALAS
G.R. No. 113032, August 21, 1997. Hermosisima, Jr.
Directors and trustees are not entitled to salary or other compensation

when they perform nothing more than the usual and ordinary duties of their
office, founded on the presumption that directors and trustees render service
gratuitously, and that the return upon their shares adequately furnishes the
motives for service, without compensation.
Facts:
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-

Tubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the same
family, are the majority and controlling members of the Board of Trustees of
Western Institute of Technology, Inc., a stock corporation engaged in the
operation, among others, of an educational institution. According to
petitioners, the minority stockholders of WIT, a Special Board Meeting was
held. In attendance were other members of the Board including one of the
petitioners Reginald Villasis. In said meeting, the Board of Trustees passed
Resolution No. 48, s. 1986, granting monthly compensation to the private
respondents as corporate officers retroactive June 1, 1985.
A few years later, petitioners Homero Villasis, Prestod Villasis,

Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against
private respondents before the Office of the City Prosecutor, as a result of
which two (2) separate criminal informations, one for falsification of a public
document and the other for estafa, were filed before the Regional Trial Court.
The charge for falsification of public document was anchored on the

private respondents' submission of WIT's income statement for the fiscal year
1985-1986 with the Securities and Exchange Commission reflecting therein
the disbursement of corporate funds for the compensation of private
respondents based on Resolution No. 4, series of 1986, making it appear that
the same was passed by the board on March 30, 1986, when in truth, the same
was actually passed on June 1, 1986, a date not covered by the corporation's
fiscal year 1985-1986.
Thereafter, trial for the two criminal cases, was consolidated. After a
full-blown hearing, Judge Porfirio Parian handed down a verdict of acquittal
on both counts without imposing any civil liability against the accused therein.
Petitioners filed a Motion for Reconsideration of the civil aspect of the RTC
Decision which was, however, denied in an Order.
Issue:
Whether or not the case is derivative suit correctly filed in the Regional
Trial Court.
CORPORATION LAW
Ruling:
No. Granting, for purposes of discussion, that this is a derivative suit

as insisted by petitioners, which it is not, the same is outrightly dismissible for
having been wrongfully filed in the regular court devoid of any jurisdiction to
entertain the complaint. The ease should have been filed with the Securities
and Exchange Commission (SEC) which exercises original and exclusive
jurisdiction over derivative suits, they being intra-corporate disputes, per
Section 5 (b) of P.D. No. 902-A: “In addition to the regulatory and
adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have original and
exclusive jurisdiction to hear and decide cases involving: Controversies
arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation,
partnership or association and the State insofar as it concerns their individual
franchise or right to exist as such entity.
CORPORATION LAW
RICARDO GURREA vs. JOSE MANUEL LEZAMA

G.R. No. L-10556 April 30, 1958. Bautista, A.
One distinction between officers and agents of a corporation lies in the

manner of their creation. An officer is created by the charter of the
corporation, and the officer is elected by the directors or the stockholders. An
agency is usually created by the officers, or one or more of them, and the
agent is appointed by the same authority. It is clear that the two terms officers
and agents are by no means interchangeable. One, deriving its existence from
the other, and being dependent upon that other for its continuation, is
necessarily restricted in its powers and duties, and such powers and duties,
are not necessarily the same as those pertaining to the authority creating it.
The officers, as such, are the corporation. An agent is an employee. "A mere
employment, however liberally compensated, does not rise to the dignity of an
office.
Facts:
Gurrea instituted this action to have Resolution No. 65 of the Board of

Directors of the La Paz Ice Plant and Cold Storage Co., Inc., removing him
from his position of manager of said corporation declared null and void and
to recover damages incident thereto. The action is predicated on the ground
that said resolution was adopted in contravention of the provisions of the by-
laws of the corporation.
Defendant answered the complaint setting up as defense that plaintiff

had been removed by virtue of a valid resolution.
Issue:
Whether or not petitioner can be suspended or removed by said board

of directors under such terms as it may see fit.
Ruling:
Yes. Section 33 of the Corporation Law provides: "Immediately after

the election, the directors of a corporation must organize by the election of a
president, who must be one of their number, a secretary or clerk who shall be
a resident of the Philippines . . . and such other officers as may be provided
for in the by-laws." The by-laws of the instant corporation in turn provide that
in the board of directors there shall be a president, a vice-president, a secretary
and a treasurer. These are the only ones mentioned therein as officers of the
corporation. The manager is not included although the latter is mentioned as
the person in whom the administration of the corporation is vested, and with
the exception of the president, the by-laws provide that the officers of the
corporation may be removed or suspended by the affirmative vote of 2/3 of
the corporation.
CORPORATION LAW
From the above the following conclusion is clear: that we can only
regard as officers of a corporation those who are given that character either by
the Corporation Law or by its by-laws. The rest can be considered merely as
employees or subordinate officials. And considering that plaintiff has been
appointed manager by the board of directors and as such does not have the
character of an officer, the conclusion is inescapable that he can be suspended
or removed by said board of directors under such terms as it may see fit and
not as provided for in the by-laws. Evidently, the power to appoint carries with
it the power to remove, and it would be incongruous to hold that having been
appointed by the board of directors he could only be removed by the
stockholders.
CORPORATION LAW
LORENZO C. DY, et. al., vs. NLRC

G.R. No. L-68544 October 27, 1986. Narvasa, J.
It is the Securities and Exchange Commission (SEC) and not the

National Labor Relations Commission (NLRC) that has jurisdiction over a
dispute involving the termination of a bank manager as a result of his non-
reelection, thereto, as prescribed in the Bank’s by-laws. It is no hindrance to
SEC jurisdiction that a person raises in his complaint the issues that he was
illegally dismissed and asks for remuneration where complainant is not a
mere employee but a stockholder and officer of the corporation.
Facts:
Private respondent Carlito H. Vailoces was the manager of Rural Bank

of Ayungon in Negros Oriental, he was also a director and a stockholder of
the bank. On June 4, 1983, a special stockholders' meeting was called for the
purpose of electing the members of the Rural Bank of Ayungon’s Board of
Directors. Immediately after the election the new Board proceeded to elect
the bank's executive officers. Pursuant to the bank's by-laws, providing for
the election by the entire membership of the Board of the executive officers
of the bank, i.e., the president, vice-president, secretary, cashier and bank
manager, in that board meeting of June 4, 1983, petitioners Lorenzo Dy,
William Ibero and Ricardo Garcia were elected president, vice-president and
corporate secretary, respectively. Vailoces was not re-elected as bank
manager. Vailoces filed a complaint for illegal dismissal and damages.
There is no dispute that the position from which private respondent

Vailoces claims to have been illegally dismissed is an elective corporate
office. He himself acquired that position through election by the bank's Board
of Directors at the organizational meeting of November 17, 1979. 10 He lost
that position because the Board that was elected in the special stockholders'
meeting of June 4, 1983 did not re-elect him. And when Vailoces, in his
position paper submitted to the Labor Arbiter, impugned said stockholders'
meeting as illegally convoked and the Board of Directors thereby elected as
illegally constituted, 11 he made it clear that at the heart of the matter was the
validity of the directors' meeting of June 4, 1983 which, by not re-electing him
to the position of manager, in effect caused termination of his services.
Issue:
Whether or not Vailoces was illegally dismissed and NLRC has

jurisdiction.
Ruling:
No. The foregoing indubitably show that, fundamentally, the

controversy is intra-corporate in nature. It revolves around the election of
directors, officers or managers of the PSBA, the relation between and among
CORPORATION LAW
its stockholders, and between them and the corporation. Private respondent
also contends that his "ouster" was a scheme to intimidate him into selling his
shares and to deprive him of his just and fair return on his investment as a
stockholder received through his salary and allowances as Executive Vice-
President. Vis-a-vis the NLRC, these matters fall within the jurisdiction of the
SEC. (PBSA vs Leano).
Respondent Vailoces' invocation of estoppel as against petitioners with

respect to the issue of jurisdiction is unavailing. In the first place, it is not
quite correct to state that petitioners did not raise the point in the lower
tribunal. Although rather off handedly, in their appeal to the NLRC they called
attention to the Labor Arbiter's lack of jurisdiction to rule on the validity of
the meeting of July 2, 1983, but the dismissal of the appeal for alleged
tardiness effectively precluded consideration of that or any other question
raised in the appeal. More importantly, estoppel cannot be invoked to prevent
this Court from taking up the question of jurisdiction, which has been apparent
on the face of the pleadings since the start of litigation before the Labor
Arbiter.
These considerations make inevitable the conclusion that the judgment

of the Labor Arbiter and the resolution of the NLRC are void for lack of cause
of jurisdiction, and this Court must set matters aright in the exercise of its
judicial power.
This is not a case of dismissal. The situation is that of a corporate office

having been declared vacant, and of Tan's not having been elected thereafter.
The matter of whom to elect is a prerogative that belongs to the Board, and
involves the exercise of deliberate choice and the faculty of discriminative
selection. Generally speaking, the relationship of a person to corporation,
whether as officer or as agent or employee, is not determined by the nature of
the services performed, but by the incidents of the relationship as they actually
exist. (PSBA vs Leano).
CORPORATION LAW
ARMANDO T. DE ROSSI vs. NATIONAL LABOR RELATIONS

COMMISSION (NLRC)
G.R. No. 108710, September 14, 1999. Quisumbing, J.
If an intra-corporate controversy, its nature is not altered by the reason

or wisdom, or lack thereof, with which the Board of Directors might have in
taking such action. This type of fraud encompasses controversies in a
relationship within the corporation covered by the SEC jurisdiction.
Perforce, the matter would come within the area of corporate affairs and
management, and such a corporate controversy would call for the
adjudicative expertise of the SEC, not the Labor Arbiter or the NLRC.
Facts:
An Italian citizen, petitioner was the Executive Vice-President and

General Manager of private respondent, Matling Industrial and Commercial
Corporation (MICC). He started work on July 1, 1985. On August 10, 1988,
MICC terminated his employment. Aggrieved, petitioner filed with the
NLRC, National Capital Region on September 21, 1989, a complaint for
illegal dismissal with corresponding damages. MICC based petitioner's
dismissal on the ground that the petitioner failed to secure his employment
permit, grossly mismanaged the business affairs of the company, and misused
corporate funds. However, petitioner argued that it was the duty of the
company to secure his work permit during the term of his office, and that his
termination was illegal for lack of just cause. On November 27 1991, Labor
Arbiter Asuncion rendered a decision in favor of petitioner where a writ of
execution was issued to collect the back wages of petitioner and giving MICC
the option to reinstate petitioner physically or constructively through payroll
reinstatement. Upon appeal, the NLRC dismissed the case for lack of
jurisdiction.
Issue:
Whether or not the NLRC has jurisdiction over the dismissal case.
Ruling:
No. The SEC, and not the NLRC, has original and exclusive
jurisdiction over cases involving the removal of corporate officers. Section 5,
paragraph (c) of P.D. 902-A unequivocally provides that SEC has jurisdiction
over intra-corporate affairs regarding the election or appointment of officers
of a corporation.
An "office" is created by the charter of the corporation under which a

corporation is organized, and the officer is elected by the directors or
stockholders. In the present case, private respondents aver that the officers and
their terms of office are prescribed by the corporation's by-laws.The by-laws
CORPORATION LAW
being in force, clearly petitioner is considered an officer of MICC, elected

and/or designated by its board of directors.
A corporate officer's removal from his office is a corporate act. If such

removal occasions an intra-corporate controversy, its nature is not altered by
the reason or wisdom, or lack thereof, with which the Board of Directors
might have in taking such action. When petitioner, as Executive Vice-
President allegedly diverted company funds for his personal use resulting in
heavy financial losses to the company, this matter would amount to fraud.
Such fraud would be detrimental to the interest not only of the corporation but
also of its members. This type of fraud encompasses controversies in a
relationship within the corporation covered by SEC jurisdiction. Perforce, the
matter would come within the area of corporate affairs and management, and
such a corporate controversy would call for the adjudicative expertise of the
SEC, not the Labor Arbiter or the NLRC.
CORPORATION LAW
PEOPLE’S AIRCARGO vs. COURT OF APPEALS

G.R. No. 117847. October 7, 1998. Panganiban, J.
Contracts entered into by a corporate president without express prior

board authority bind the corporation, when such officers’ apparent authority
established and these contracts are ratified by the corporation.
Facts:
People’s Aircargo and Warehousing Co. Inc. is a domestic corporation,

organized in the middle of 1986 to operate a customs bonded warehouse at
the old Manila International Airport in Pasay City.
To obtain a license for the corporation from the Bureau of Customs,

Antonio Punsalan Jr., the corporation president, solicited a proposal from
private respondent Stefani Saño for the preparation of a feasibility study. Saño
submitted a letter-proposal to Punsalan.
Initially, Cheng Yong, the majority stockholder of People’s Aircargo,

objected to Saño’s offer, as another company priced a similar proposal at only
P15,000. However, Punsalan preferred Saño’s service because of the latter's
membership in the task force, which was supervising the transition of the
Bureau of Customs from the Marcos government to the Aquino
administration.
On October 17, 1986, People’s Aircargo, through Punsalan, sent Saño

a letter, confirming their agreement. Accordingly, Saño prepared a feasibility
study for People’s Aircargo which eventually paid him the balance of the
contract price, although not according to the schedule agreed upon.
On January 10, 1987, Andy Villaceren, vice president of People’s

Aircargo, received the operations manual prepared by Saño. People’s
Aircargo submitted said operations manual to the Bureau of Customs in
connection with the former's application to operate a bonded warehouse;
thereafter, in May 1987, the Bureau issued to it a license to operate, enabling
it to become one of the three public bonded warehouses at the international
airport. Saño also conducted a three-day training seminar for the latter’s
employees.
On March 25, 1987, Saño joined the Bureau of Customs as special

assistant to then Commissioner Alex Padilla. Meanwhile, Punsalan sold his
shares in People’s Aircargo and resigned as its president in 1987.
On February 9, 1988, Saño filed a collection suit against People’s

Aricargo, alleging that he had prepared an operations manual for petitioner,
conducted a seminar-workshop for its employees and delivered to it a
computer program; but that, despite demand, People’s Aircargo refused to pay
him for his services.
CORPORATION LAW
Petitioner, in its answer, denied that private respondent had prepared an

operations manual and a computer program or conducted a seminar-workshop
for its employees. It further alleged that the letter-agreement was signed by
Punsalan without authority, "in collusion with [private respondent] in order to
unlawfully get some money from [petitioner]," and despite his knowledge that
a group of employees of the company had been commissioned by the board
of directors to prepare an operations manual.
Issues:
1. Whether or not the president of People’s Aircargo has apparent

authority to bind the former to the Second Contract;
2. Whether or not the said contract was valid and not merely simulated.
Ruling:
1. Yes. Punsalan as president has apparent authority to bind the

corporation.
The pivotal issue was the enforceability of the Second Contract, which bound
People’s Aircargo through Punsalan for consultancy services in the amount of
P400,000.00, 50% of which should be paid upon completion the
seminar/workshop and the other 50% upon approval by the Commissioner.
People’s Aircargo argues that the contract is unenforceable because
Punsalan, its president, was not authorized by its board of directors to enter
into said contract.
The general rule is that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation. A
corporation is a juridical person, separate and distinct from its stockholders
and members, "having powers, attributes and properties expressly authorized
by law or incident to its existence."
Being a juridical entity, a corporation may have a board of directors,

which exercises almost all corporate powers, lays down all corporate business
policies and is responsible for the efficiency of management, as provided in
Section 23 of the Corporation Code.
Under this provision, the power and the responsibility to decide whether
the corporation should enter into a contract that will bind the corporation is
lodged in the board, subject to the articles of incorporation, by-laws, or
relevant provisions of law. However, just as a natural person may authorize
another to do certain acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to officers, committees or
agents. The authority of such individuals to bind the corporation is generally
derived from law, corporate bylaws or authorization from the board, either
CORPORATION LAW
expressly or impliedly by habit, custom or acquiescence in the general course

of business.
Thus the authority to act for and to bind a corporation may be presumed
from acts of recognition in other instances, wherein the power was in fact
exercised without any objection from its board or shareholders. People’s
Aircargo had previously allowed its president to enter into the First Contract
with Saño without a board resolution expressly authorizing him; thus, it had
clothed its president with apparent authority to execute the subject contract.
Petitioner rebuts, arguing that a single isolated agreement prior to the

subject contract does not constitute corporate practice. Apparent authority is
derived not merely from practice. Its existence may be ascertained through (1)
the general manner in which the corporation holds out an officer or agent as
having the power to act or, in other words, the apparent authority to act in
general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, whether
within or beyond the scope of his ordinary powers. It requires presentation of
evidence of similar act(s) executed either in its favor or in favor of other
parties. It is not the quantity of similar acts which establishes apparent
authority, but the vesting of a corporale officer with the power to bind the
corporation.
In the case at bar, People’s Aircargo, through its president Antonio

Punsalan Jr., entered into the First Contract without first securing board
approval. Despite such lack of board approval, People’s Aircargo did not
object to or repudiate said contract, thus "clothing" its president with the
power to bind the corporation.
2. Yes. The contract was valid.
Although there were badges of fraud, the same cannot affect the
perfection of the contract. First, the lack of payment (whether down, partial or
full payment), even after completion of Saño’s obligations, imports only a
defect in the performance of the contract on the part of petitioner. Second, the
delay in the filing of action was not fatal to Saño’s cause. Despite the lapse of
one year after he completed his services or eight months after the alleged last
demand for payment in June 1987, the action was still filed within the
allowable period, considering that an action based on a written contract
prescribes only after ten years from the time the right of action accrues. Third,
a misspelling in the contract does not establish vitiation of consent, cause or
object of the contract. Fourth, a confirmation letter is not an essential element
of a contract, neither is it necessary to perfect one. Fifth, Saño’s failure to
implead the corporate president does not establish collusion between them.
People’s Aircargo could have easily filed a third-party claim against Punsalan
if it believed that it had recourse against the latter. Lastly, the mere fact that
the contract price was six times the alleged going rate does not invalidate it.
In short, these "badges" do not establish simulation of said contract.
CORPORATION LAW
MANUEL A. TORRES, JR., et al. vs. COURT OF APPEALS,

SECURITIES AND EXCHANGE COMMISSION, et al.
G.R. No. 120138, September 5, 1997. Kapunan, J.
In the absence of provisions to the contrary, the corporate secretary is

the custodian of corporate records—he keeps the stock and transfer book and
makes proper and necessary entries therein. It is the duty and obligation of
the corporate secretary to register valid transfers of stock in the books of the
corporation; and in the event he refuses to comply with such duty, the
transferor-stockholder may rightfully bring suit to compel performance.
Facts:
The late Manuel A. Torres, Jr. was the major stockholder of Tormil
Realty & Development Corporation while private respondents who are the
children of Judge Torres' deceased brother Antonio A. Torres, constituted the
minority stockholders. In particular, their respective shareholdings and
positions in the corporation.
In 1984, Judge Torres, in order to make substantial savings in taxes,

adopted an "estate planning" scheme under which he assigned to Tormil
Realty & Development Corporation (Tormil for brevity) various real
properties he owned and his shares of stock in other corporations in exchange
for 225,972 Tormil Realty shares. Hence, on various dates in July and August
of 1984, ten (10) deeds of assignment were executed by the late Judge
Torres.Consequently, the aforelisted properties were duly recorded in the
inventory of assets of Tormil Realty and the revenues generated by the said
properties were correspondingly entered in the corporation's books of account
and financial records.
Due to the insufficient number of shares of stock issued to Judge Torres

and the alleged refusal of private respondents to approve the needed increase
in the corporation's authorized capital stock (to cover the shortage of 972
shares due to Judge Torres under the "estate planning" scheme), on 11
September 1986, Judge Torres revoked the two (2) deeds of assignment
covering the properties in Makati and Pasay City.
Issue:
Whether or not the deed of assignment executed can be revoked.
Ruling:
No. The shortage of 972 shares would not be valid ground for
respondent Torres to unilaterally revoke the deeds of assignment he had
executed on July 13, 1984 and July 24, 1984 wherein he voluntarily assigned
to TORMIL real properties covered by TCT No. 374079 (Makati) and TCT
No. 41527, 41528 and 41529 (Pasay) respectively. A comparison of the
CORPORATION LAW
number of shares that respondent Torres received from TORMIL by virtue of

the "deeds of assignment" and the stock certificates issued by the latter to the
former readily shows that TORMIL had substantially performed what was
expected of it. In fact, the first two issuances were in satisfaction to the
properties being revoked by respondent Torres. Hence, the shortage of 972
shares would never be a valid ground for the revocation of the deeds covering
Pasay and Quezon City properties.
Moreover, we agree with the contention of the Solicitor General that

the shortage of shares should not have affected the assignment of the Makati
and Pasay City properties which were executed in 13 and 24 July 1984 and
the consideration for which have been duly paid or fulfilled but should have
been applied logically to the last assignment of property — Judge Torres'
Ayala Fund shares — which was executed on 29 August 1984.
CORPORATION LAW
JULIETA V. ESGUERRA vs. COURT OF APPEALS and SURESTE

PROPERTIES, INC.
G.R. No. 119310, February 3, 1997. Panganiban, J.
When a Secretary’s Certificate is regular on its face, it can be relied

upon by a third party who does not have to investigate the truths of the facts
contained in such certification; otherwise business transactions of
corporations would become tortuously slow and unnecessarily hampered.
Facts:
Julieta Esguerra filed a complaint for administration of conjugal

partnership or separation of property against her husband Vicente Esguerra,
Jr. and V. Esguerra Construction Co., Inc. (VECCI) and other family
corporations as defendants before the trial court.
The parties entered into a compromise agreement. By virtue of said

agreement, Esguerra Bldg. I was sold and the net proceeds distributed
according to the agreement. The controversy arose with respect to Esguerra
Building II. Herein petitioner started claiming one-half of the rentals of the
said building which VECCI refused. Thus, petitioner filed a motion with
respondent court praying that VECCI be ordered to remit one-half of the
rentals to her. The trial court ruled in favor of petitioner.
Meanwhile, Esguerra Bldg. II was sold to private respondent Sureste

Properties. Inc. for P150,000,000.00 prompting Julieta V. Esguerra to file a
motion seeking the nullification of the sale on the ground that VECCI is not
the lawful and absolute owner thereof and that she has not been notified nor
consulted as to the terms and conditions of the sale. The trial court ruled that
the sale to Sureste was valid.
Issue:
Whether or not the sale of Esguerra Building II is a valid exercise of

corporate power.
Ruling:
Yes. V. Esguerra Construction Co., Inc. (VECCI) sale of all the

properties mentioned in the judicially-approved compromise agreement was
done on the basis of its Corporate Secretary's Certification of these two
resolutions. The partial decision did not require any further board or
stockholder resolutions to make VECCI's sale of these properties valid. Being
regular on its face, the Secretary's Certification was sufficient for private
respondent Sureste Properties, Inc. to rely on. It did not have to investigate the
truth of the facts contained in such certification. Otherwise, business
transactions of corporations would become tortuously slow and unnecessarily
hampered. Ineluctably, VECCI's sale of Esguerra Building II to private
CORPORATION LAW
respondent was not ultra vires but a valid execution of the trial court's partial
decision.
Based on the foregoing, the sale is also deemed to have satisfied the
requirements of Section 40 of the Corporation Code.
CORPORATION LAW
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.,

vs. COURT OF APPEALS, et.al.
G.R. No. 129459, September 29, 1998. Panganiban, J.
A corporate treasurer’s function have generally been described as “to

receive and keeps funds of the corporation, and to disburse them in
accordance with the authority given him by the board or the properly
authorized officers.” Unless duly authorized, a treasurer, whose power are
limited, cannot bind the corporation in a sale of its assets. Selling is obviously
foreign to a corporate treasurer’s function. When the corporation
categorically denies ever having authorized its treasurer to sell the subject
parcel of land, the buyer had the burden of proving that the treasurer was in
fact authorized to represent and bind the allegedly selling corporation in the
transaction. And failing to discharge such burden, and failing to show any
provision of the articles of incorporation, by-laws or board resolution to
prove that the treasurer possessed such power, the sale is void and not binding
on the alleged selling corporation.
Facts:
San Juan Structural and Steel Fabricators, Inc.'s amended complaint

alleged that on 14 February 1989, plaintiff-appellant entered into an
agreement with defendant-appellee Motorich Sales Corporation for the
transfer to it of a parcel of land. On March 1, 1989. Mr. Andres T. Co,
president of plaintiff-appellant corporation, wrote a letter to defendant-
appellee Motorich Sales Corporation requesting for a computation of the
balance to be paid: that said letter was coursed through defendant-appellee's
broker. Linda Aduca, who wrote the computation of the balance: that on
March 2, 1989, plaintiff-appellant was ready with the amount corresponding
to the balance, covered by Metrobank Cashier's Check No. 004223, payable
to defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and
defendant-appellee Motorich Sales Corporation were supposed to meet in the
office of plaintiff-appellant but defendant-appellee's treasurer, Nenita Lee
Gruenberg, did not appear; that defendant-appellee Motorich Sales
Corporation despite repeated demands and in utter disregard of its
commitments had refused to execute the Transfer of Rights/Deed of
Assignment which is necessary to transfer the certificate of title.
Issue:
Whether or not the doctrine of piercing the veil of corporate fiction be

applied to Motorich.
Ruling:
No. First, petitioner itself concedes having raised the issue belatedly,
not having done so during the trial, but only when it filed its sur-rejoinder
before the Court of Appeals. Thus, this Court cannot entertain said issue at
CORPORATION LAW
this late stage of the proceedings. It is well-settled the points of law, theories
and arguments not brought to the attention of the trial court need not be, and
ordinarily will not be, considered by a reviewing court, as they cannot be
raised for the first time on appeal. Allowing petitioner to change horses in
midstream, as it were, is to run roughshod over the basic principles of fair
play, justice and due process.
Second, even if the above mentioned argument were to be addressed at

this time, the Court still finds no reason to uphold it. True, one of the
advantages of a corporate form of business organization is the limitation of an
investor's liability to the amount of the investment. This feature flows from
the legal theory that a corporate entity is separate and distinct from its
stockholders. However, the statutorily granted privilege of a corporate veil
may be used only for legitimate purposes. On equitable considerations, the
veil can be disregarded when it is utilized as a shield to commit fraud,
illegality or inequity; defeat public convenience; confuse legitimate issues; or
serve as a mere alter ego or business conduit of a person or an instrumentality,
agency or adjunct of another corporation.
CORPORATION LAW
SALOME PABON and VICENTE CAMONAYAN vs. NATIONAL

LABOR RELATIONS COMMISSION and
SENIOR MARKETING CORPORATION
G.R. No. 120457, September 24, 1998, MARTINEZ, J.
A bookkeeper can be considered as an agent of a corporation within

the purview of Section 13, Rule 14 of the old Rules of Court, his job being so
integrated with the corporation making it supposable that he will realize he
knows what he should do with any legal papers served on him.
While the service of summons was made on a person not authorized to

receive the same in behalf of the petitioner corporation, nevertheless the
summons and complaints were received by the corporation through its clerk.
Therefore, there was substantial compliance with the rule on service of
summons which conferred jurisdiction on the Labor Arbiter over the said
corporation.
Facts:
Complaints for illegal dismissal and non-payment of benefits were filed

by Salome Pabon and Vicente Camonayan against Senior Marketing
Corporation (SMC) and its Field Manager, R-Jay Roxas. Summons and
notices of hearings were sent to Roxas at private respondent’s provincial
office in Santiago, Isabela which were received by its bookkeeper, Mina
Villanueva.
The Labor Arbiter rendered a judgment by default after finding that

private respondent tried to evade all the summons and orders of hearing by
refusing to claim all the registered mail addressed to it. A copy of the Labor
Arbiters Decision was sent to private respondent’s principal office in Manila.
Instead of appealing to the National Labor Relations Commission

(NLRC), within 10 days from receipt of the said decision, private respondent
filed a motion for reconsideration/new trial before the Labor Arbiter.
The NLRC ruled for the respondent. Thereafter, imputing grave abuse
of discretion on the part of the NLRC, petitioners elevated the case to the
Supreme Court via petition for certiorari. They alleged that private respondent
was properly served with summons in accordance with the Rules of Court
through its bookkeeper at its provincial office address. By virtue of said
service of summons, the Labor Arbiter acquired jurisdiction over private
respondent. Private respondent contends that it was not validly served with
summons, since its bookkeeper cannot be considered as an agent under
Section 13, Rule 14 of the old Rules of Court upon whom valid service can be
made. Consequently, the Labor Arbiters decision is void as it was rendered
without jurisdiction over private respondent.
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Issue:
Whether the summons was properly served on Senior Marketing

Corporation, through its bookkeeper, so as to confer jurisdiction on the Labor
Arbiter over the said corporation
Ruling:
Yes. Courts acquire jurisdiction over the person of a party-defendant

by virtue of the service of summons in the manner required by law. In the case
at bar, although as a rule, modes of service of summons are strictly followed
in order that the court may acquire jurisdiction over the person of a defendant,
such procedural modes, however, are liberally construed in quasi-judicial
proceedings, as in this case, substantial compliance with the same being
considered adequate.
The Supreme Court is of the view that a bookkeeper can be considered

as an agent of private respondent- corporation within the purview of Section
13, Rule 14 of the old Rules of Court. The rationale of all rules with respect
to service of process on a corporation is that such service must be made to an
agent of a representative so integrated with the corporation so as to make it a
priori supposable that he will realize his responsibilities and know what he
should do with any legal papers served on him. The job of a bookkeeper is so
integrated with the corporation that his regular recording of the corporation’s
business accounts and essential facts about the transactions of a business
enterprise safeguards the corporation from possible fraud being committed
adverse to its own corporate interest.
Although it may be true that the service of summons was made on a

person not authorized to receive the same in behalf of the petitioner,
nevertheless since it appears that the summons and complaint were in fact
received by the corporation through its said clerk, the Court finds that there
was a substantial compliance with the rule on service of summons.
The rules on service of process make service on agent sufficient. It does not
in any way distinguish whether the agent be general or special, but is complied
with even by a service upon an agent having limited authority to represent his
principal. As such, it does not necessarily connote an officer of the
corporation. However, though this may include employees other than officers
of a corporation, this does not include employees whose duties are not so
integrated to the business that their absence or presence will not toll the entire
operation of the business. It is for this reason that the Supreme Court lent
credence to the finding of the Labor Arbiter when it ruled that it required
jurisdiction over private respondent on the basis of Section 5, Rule III of the
NLRC Rules of Procedure.
CORPORATION LAW
JAIME PABALAN AND EDUARDO LAGDAMEO vs.

NATIONAL LABOR RELATIONS COMMISSION,
LABOR ARBITER AMBROSIO B. SISON, ELIZABETH RODEROS,
ET. AL, and THE SHERIFF OF THE NATIONAL LABOR
G.R. No. 89879, April 20, 1990, GANCAYCO, J.
Officers of a corporation are not liable for their official acts unless they
exceeded their authority.
Facts:
Eighty-four (84) workers of the Philippine Inter-Fashion, Inc. (PIF)

filed a complaint against the latter for illegal transfer simultaneous with illegal
dismissal without justifiable cause and in violation of the provision of the
Labor Code on security of tenure as well as the provisions of Batas Pambansa
Blg. 130. Complainants demanded reinstatement with full back wages, living
allowance, 13th month pay and other benefits under existing laws and/or
separation pay. PIF, through its General Manager, was notified about the
complaint and summons for the hearing. With leave of the labor arbiter,
complainants filed their supplemental position paper impleading the
petitioners of this case as officers of the PIF in the complaint for their illegal
transfer to a new firm.
The labor arbiter ruled in favor of the workers ordering PIF and its
officers Mr. Jaime Pabalan and Mr. Eduardo Lagdameo to jointly and
severally reinstate and pay the workers their backwages and other benefits
prayed for.
The NLRC affirmed the appealed decision.
Issue:
Whether the petitioners as officers of the corporation PIF be held jointly

and severally liable for PIF’s liability in this case
Ruling:
No. The settled rule is that the corporation is vested by law with a
personality separate and distinct from the persons composing it, including its
officers as well as from that of any other legal entity to which it may be related.
Thus, a company manager acting in good faith within the scope of his
authority in terminating the services of certain employees cannot be held
personally liable for damages. Mere ownership by a single stockholder or by
another corporation of all or nearly all capital stocks of the corporation is not
by itself sufficient ground for disregarding the separate corporate personality.
CORPORATION LAW
As a general rule, officers of a corporation are not personally liable for

their official acts unless it is shown that they have exceeded their authority.
However, the legal fiction that a corporation has a personality separate and
distinct from stockholders and members may be disregarded where the
incorporators and directors belong to a single family, the corporation and its
members can be considered as one in order to avoid its being used as an
instrument to commit injustice or to further an end subversive of justice.
In this particular case complainants did not allege or show that

petitioners, as officers of the corporation, deliberately and maliciously
designed to evade the financial obligation of the corporation to its employees,
or used the transfer of the employees as a means to perpetrate an illegal act or
as a vehicle for the evasion of existing obligations, the circumvention of
statutes, or to confuse the legitimate issues. Hence petitioners cannot be held
jointly and severally liable with PIF.
CORPORATION LAW
ELENA F. UICHICO, SAMUEL FLORO, VICTORIA F.

BASILIO, vs. NATIONAL LABOR RELATIONS COMMISSION,
LUZVIMINDA SANTOS, SHIRLEY PORRAS,
CARMEN ELIZARDE, ET. AL
G.R. No. 121434; June 2, 1997, HERMOSISIMA, JR.
In labor cases, corporate directors and officers are solidarily liable

with the corporation for the termination of employment of corporate
employees done with malice or in bad faith.
Facts:
Private respondents were employed by Crispa, Inc. for many years in

the latter's garments factory. Private respondents' services were terminated
on the ground of retrenchment due to alleged serious business losses suffered
by Crispa, Inc. Respondent employees, filed before the NLRC- Manila, 3
separate complaints for illegal dismissal and diminution of compensation
against Crispa, Inc., Valeriano Floro, and the petitioners. Valeriano Floro was
a major stockholder, incorporator and Director of Crispa, Inc., while the
petitioners were high ranking officers and directors of the company.
After due hearing, Labor Arbiter dismissed the complaints for illegal
dismissal but ordered Crispa, Inc., Floro and the petitioners to pay respondent
employees separation pays equivalent to 17 days for every year of service.
Dissatisfied, private respondents appealed the matter to the NLRC. In

a Resolution, NLRC found Crispa, Inc., Valeriano Floro, together with the
petitioners liable for illegal dismissal and modified the award of separation
pay in the amount of 1 month for every year of service.
Petitioners filed a Motion for Reconsideration but the same was denied
by the NLRC.
The NLRC, treating the Motion to Clarify Judgment as an Appeal by

respondents, granted it, including in the computation, 6 months back wages
which was omitted in the dispositive portion.
Petitioners filed a Motion for Reconsideration, which was denied.
Issue:
Whether or not Crispa, Inc., and its board of directors are solidarily
liable for back wages and separation pay to be awarded to respondents
Ruling:
Yes. A corporation is a juridical entity with legal personality separate

and distinct from those acting for and in its behalf and, in general, from the
CORPORATION LAW
people comprising it. The general rule is that obligations incurred by the
corporation, acting through its directors, officers and employees, are its sole
liabilities. There are times, however, when solidary liabilities may be incurred
but only when exceptional circumstances warrant such as in the following
cases:
“1. When directors and trustees or, in appropriate cases, the officers of
a corporation:
(a) vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the
corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered

stocks or who, having knowledge thereof, did not forthwith file with
the corporate secretary his written objection thereto;
3. When a director, trustee or officer has contractually agreed or

stipulated to hold himself personally and solidarily liable with the
corporation; or
4. When a director, trustee or officer is made, by specific provision of

law, personally liable for his corporate action.”
In labor cases, particularly, corporate directors and officers are

solidarily liable with the corporation for the termination of employment of
corporate employees done with malice or in bad faith. In this case, it is
undisputed that petitioners have a direct hand in the illegal dismissal of
respondent employees. They were the ones, who as high-ranking officers and
directors of Crispa, Inc., signed the Board Resolution retrenching the private
respondents on the feigned ground of serious business losses that had no basis
apart from an unsigned and unaudited Profit and Loss Statement which, to
repeat, had no evidentiary value whatsoever. This is indicative of bad faith
on the part of petitioners for which they can be held jointly and severally liable
with Crispa, Inc. for all the money claims of the illegally terminated
respondent employees in this case.
CORPORATION LAW
PART IX
CORPORATE POWERS, AUTHORITY AND

ACTIVITIES
189 Land Bank of the Philippines vs. COA
193 Atrium Management Corporation vs. Court of Appeals
195 ABS-CBN Broadcasting Corporation vs. Court of Appeals
197 Yao Ka Sin Trading vs. Court of Appeals
199 Soler vs. Court of Appeals
201 Harden vs. Benguet Consolidated Mining, Co.
203 Luneta Motor Co., vs. A.D. Santos, Inc.
205 Tam Wing Tak vs. Makasiar
207 Central Textile Mills, Inc. vs. NWPC
212 De La Rama vs. Ma-ao Sugar Central Co.
215 Nielson & Co. vs. Lepanto Consolidated Mining, Co.
218 NTC vs. Court of Appeals
220 Republic Planters Bank vs. Agana
226 China Banking Corp. vs. Court of Appeals
230 Lopez Realty vs. Fontecha
232 JM Tuason & Co., vs. Bolanos
CORPORATION LAW
LAND BANK OF THE PHILIPPINES vs. COMMISSION ON AUDIT,

G.R. Nos. 89679-81, September 28, 1990, MELENCIO-HERRERA, J.
The clear intendment of its Charter is for LBP to be clothed not only
with the express powers granted to it, but also with those implied, incidental
and necessary for the exercise of those express powers.
The test to be applied is whether the act of the corporation is in direct

and immediate furtherance of its business, fairly incident to the express
powers and reasonably necessary to their exercise. If so, the corporation has
the power to do it.
Facts:
On 22 July 1980, the Board of Directors of the Land Bank of the

Philippines (LBP) issued Resolution No. 80-222 fixing the new rates for
penalty charges on past due loans/amortization and other credit
accommodations.
The resolution also provided that "in cases of defaults in loan payment
and other credit accommodations due to unforeseen, highly justifiable reasons
or circumstances beyond the control of the borrower such as damages due to
natural calamities, sickness, adverse government rulings or court judgments,
duly processed and verified by the lending units, penalty charges may be
condoned or reduced by the Loan Executive Committee upon
recommendation of the appropriate lending units"
Pursuant to the Resolution, LBP, through its Loan Executive

Committee, waived the penalty charges in the amount of P9,636.36 on the
loan of Home Savings Bank and Trust Company (HSBTC).
LBP requested its Corporate Auditor to pass in audit its waiver of the
penalty charges. The said official questioned the waiver and opined that the
power to condone interests or penalties is vested exclusively in the
Commission on Audit (COA) but in the absence of a categorical ruling on the
matter applicable to a government banking institution, referred the LBP
request to the COA. The COA ruled that the waiver is unauthorized and should
outright be disallowed in audit.
Issue:
Whether or not LBP is authorized to compromise claims or liabilities

in whole or in part
Ruling:
Yes. LBP was created as a body corporate and government

instrumentality to provide timely and adequate financial support in all phases
CORPORATION LAW
involved in the execution of needed agrarian reform. Section 75 of its Charter

vests in LBP specific powers normally exercised by banking institutions, such
as the authority to grant short, medium and long-term loans and advances
against security of real estate and/or other acceptable assets; to guarantee
acceptances, credits, loans, transactions or obligations; and, to borrow from,
or rediscount, notes, bills of exchange and other commercial papers with the
Central Bank.
In addition to the enumeration of specific powers granted to LBP,

Section 75 of its Charter also authorizes it to exercise the general powers
mentioned in the Corporation Law and the General Banking Act, as amended,
insofar as they are not inconsistent or incompatible with this Decree.
One of the general powers mentioned in the General Banking Act is

that - Writing off loans and advances with an outstanding amount of 100,000
or more shall require the prior approval of the Monetary Board.
It will thus be seen that LBP is a unique and specialized banking

institution, not an ordinary "government agency" within the scope of Section
36 of Pres. Decree No. 1445. As a bank, it is specifically placed under the
supervision and regulation of the Central Bank of the Philippines pursuant to
its Charter. In so far as loans and advances are concerned, therefore, it should
be deemed primarily governed by Central Bank Circular No. 958, Series of
1983, which vests the determination of the frequency of writing off loans in
the Board of Directors of a bank provided that the loans written off do not
exceed a certain aggregate amount. The frequency for writing off loans and
advances shall be left to the discretion of the Board of Directors of the bank
concerned.
The authority to write-off loans and advances should be construed to include

within its scope the waiver of penalty charges on past due loans, which are of
a lesser category.
Concededly, the power to write-off is not expressly granted in the LBP

Charter. It can be logically implied however, from LBP's authority to exercise
the general powers vested in banking institutions as provided in the General
Banking Act. The clear intendment of its Charter is for LBP to be clothed not
only with the express powers granted to it, but also with those implied,
incidental and necessary for the exercise of those express powers.
The test to be applied is whether the act of the corporation is in direct

and immediate furtherance of its business, fairly incident to the express
powers and reasonably necessary to their exercise. If so, the corporation has
the power to do it, otherwise, not.
CORPORATION LAW
*BIBIANO O. REYNOSO, IV vs. CA and GENERAL CREDIT

CORPORATION
G.R. Nos. 116124-25, November 22, 2000, YNARES-SANTIAGO, J.:
When the corporate fiction is used to perpetrate fraud or promote

injustice, the law steps in to remedy the problem. When that happens, the
corporate character is not necessarily abrogated. It continues for legitimate
objective. However, it is pierced in order to remedy injustice.
Facts:
Sometime in early 1960s, the Commercial Credit Corporation (CCC),

a financing company and investment firm, decided to organize franchise
companies indifferent parts of the country, wherein it shall hold 30% equity.
Employees of the CCC were designated as resident managers of the franchise
companies.
Bibiano O. Reynoso IV was designated as the resident manager of the

franchise in Quezon City, known as the Commercial Credit Corporation of
Quezon City (CCC-QC). CCC-QC entered into an exclusive agreement
management contract with CCC whereby the latter was granted the
management and full control of the business activities of the former. Under
the contract, CCC-QC shall sell, discount and/or assign its receivables to
CCC. Subsequently, however, this discounting arrangement was discontinued
pursuant to the so called DOSRI rule, prohibiting the lending of funds by
corporations to its directors, officers, stockholders and other persons with
related interest therein.
On account of the new restrictions imposed by the Central Bank policy

by virtue of the DOSRI rule, CCC decided to form CCC Equity Corporation,
a wholly-owned subsidiary to which CCC transferred its 30% equity in CCC-
QC, together with 2 seats in the latter’s Board of Directors.
A complaint for sum of money with preliminary attachment was filed

by CCC Equity against petitioner. Petitioner was also dismissed from
employment. The lower court’s decision was rendered in favor of the
petitioner and the same has become final and executory. CCC changed its
name to General Credit Corporation (GCC).
Issue:
Whether or not the judgment in favor of Reynoso may be executed

against GCC
CORPORATION LAW
Ruling:
Yes. A corporation is an artificial being created by operation of law,

having the right of succession and the powers, attributes, and properties
expressly authorized by law or incident to its existence. It is an artificial being
invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it
may be related. It was evolved to make possible the aggregation and
assembling of huge amounts of capital upon which big business depends. It
also has the advantage of non-dependence on the lives of those who compose
it even as it enjoys certain rights and conducts activities of natural persons.
Any piercing of the corporate veil has to be done with caution.

However, the court will not hesitate to use its supervisory and adjudicative
powers where the corporate fiction is used as an unfair device to achieve an
inequitable result, defraud creditors, evade contracts and obligations, or to
shield it from the effects of a court decision. The corporate fiction has to be
disregarded when necessary in the interest of justice.
The organization of subsidiary corporations as what was done here is

usually resorted to for aggrupation of capital the ability to cover more territory
and population, the decentralization of activities best decentralized, and the
securing of other legitimate advantages. But when the mother corporation and
its subsidiary cease to act in good faith and honest business judgment, when
the corporate device is used by the parent to avoid its liability for legitimate
obligations of the subsidiary, and when the corporate fiction is used to
perpetrate fraud or promote injustice, the law steps in to remedy the problem.
When that happens, the corporate character is not necessarily abrogated. It
continues for legitimate objectives. However, it is pursued in order to remedy
injustice, such as that inflicted in this case.
It is obvious that the use by CCC-QC of the same name of Commercial

Credit Corporation was intended to publicly identify it as a component of the
CCC group of companies engaged in one and the same business, i.e.,
investment and financing. Aside from CCC-Quezon City, other franchise
companies were organized such as CCC-North Manila and CCC-Cagayan
Valley. The organization of subsidiary corporations as what was done here is
usually resorted to for the aggrupation of capital, the ability to cover more
territory and population, the decentralization of activities best decentralized,
and the securing of other legitimate advantages. But when the mother
corporation and its subsidiary cease to act in good faith and honest business
judgment, when the corporate device is used by the parent to avoid its liability
for legitimate obligations of the subsidiary, and when the corporate fiction is
used to perpetrate fraud or promote injustice, the law steps in to remedy the
problem. When that happens, the corporate character is not necessarily
abrogated. It continues for legitimate objectives. However, it is pierced in
order to remedy injustice, such as that inflicted in this case.
CORPORATION LAW
ATRIUM MANAGEMENT CORPORATION vs. COURT OF

APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA M. DE
LEON, RAFAEL DE LEON, JR., AND HI-CEMENT CORPORATION
G.R. No. 109491, February 28, 2001 PARDO, J.
LOURDES M. DE LEON vs. COURT OF APPEALS,

ATRIUM MANAGEMENT CORPORATION, AND
HI-CEMENT CORPORATION
G.R. No. 121794, February 28, 2001, PARDO, J.
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 power conferred upon it by law. The term “ultra vires” is
“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.
Facts:
Hi-Cement Corporation through its corporate signatories, petitioner

Lourdes M. de Leon, treasurer, and the late Antonio de las Alas, Chairman,
issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and
Co., Inc., in turn, endorsed the four checks to Atrium for valuable
consideration. Enrique Tan of E.T. Henry approached Atrium for financial
assistance, offering to discount four RCBC checks in the total amount of P2
million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to
discount the checks, provided it be allowed to confirm with Hi-Cement the
fact that the checks represented payment for petroleum products which E.T.
Henry delivered to Hi-Cement. Upon presentment for payment, the drawee
bank dishonored all four checks for the common reason “payment stopped”.
As a result thereof, Atrium filed an action for collection of the proceeds of 4
PDC in the total amount of 2M with RTC Manila. Judgment was rendered in
favor of Atrium ordering Lourdes and Rafael de Leon, E.T. Henry and Co.,
and Hi-Cement to pay Atrium the said amount plus interest and attorneys fees.
CA absolved Hi-cement Corporation from liability. It also ruled that since
Lourdes was not authorized to issue the subjects checks in favor of E.T. Henry
Inc., the said act was ultra vires.
Issue:
Whether the issuance of the questioned checks was an ultra vires act
Ruling:
Yes. 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 power conferred upon it by law. The term “ultra vires” is
CORPORATION LAW
“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.
Personal liability of a corporate director, trustee or officer along

(although not necessarily) with the corporation may so validly attach, as a
rule, only when:
1. He assents:
(a) to a patently unlawful act of the corporation, or
(b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;
2. He consents to the issuance of watered down stocks or who, having

knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the

corporation; or
3. He is made, by a specific provision of law, to personally answer for

his corporate action.
In the case at bar, Lourdes M. de Leon and Antonio de las Alas as

treasurer and Chairman of Hi-Cement were authorized to issue the checks.
However, Ms. de Leon was negligent when she signed the confirmation letter
requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the
rediscounting of the crossed checks issued in favor of E.T. Henry. She was
aware that the checks were strictly endorsed for deposit only to the payee’s
account and not to be further negotiated. What is more, the confirmation letter
contained a clause that was not true, that is, “that the checks issued to E.T.
Henry were in payment of Hydro oil bought by Hi-Cement from E.T. Henry”.
Her negligence resulted in damage to the corporation. Hence, Ms. de Leon
may be held personally liable therefor.
CORPORATION LAW
ABS-CBN BROADCASTING CORPORATION vs. HON.COURT OF

APPEALS, REPUBLIC BROADCASTING CORP., VIVA
PRODUCTIONS, INC., and VICENTE DEL ROSARIO
G.R. No. 128690, January 21, 1999, DAVIDE, JR.
As a rule, corporate powers, such as the power to enter into contracts

are exercised by the Board of Directors. But this power may be delegated to
a corporate committee, a corporate officer or corporate manager. Such a
delegation must be clear and specific.
Facts:
In 1992, ABS-CBN Broadcasting Corporation, through its vice

president Charo Santos-Concio, requested Viva Production, Inc. to allow
ABS-CBN to air at least 14 films produced by Viva. Pursuant to this request,
a meeting was held between Viva’s representative (Vicente Del Rosario) and
ABS-CBN’s Eugenio Lopez (General Manager) and Santos-Concio was held
on April 2, 1992. During the meeting Del Rosario pro posed a film
package which will allow ABS-CBN to air 104 Viva films for P60 million.
Later, Santos-Concio, in a letter to Del Rosario, proposed a counterproposal
of 53 films (including the 14 films initially requested) for P35 million. Del
Rosario presented the counter offer to Viva’s Board of Directors but the Board
rejected the counter offer. Several negotiations were subsequently made but
on April 29, 1992, Viva made an agreement with Republic Broadcasting
Corporation (referred to as RBS – or GMA 7) which gave exclusive rights to
RBS to air 104 Viva films including the 14 films initially requested by ABS-
CBN.
ABS-CBN now filed a complaint for specific performance against Viva

as it alleged that there is already a perfected contract between Viva and ABS-
CBN in the April 2, 1992 meeting. Lopez testified that Del Rosario agreed to
the counterproposal and he (Lopez) even put the agreement in a napkin which
was signed and given to Del Rosario. ABS-CBN also filed an injunction
against RBS to enjoin the latter from airing the films. The injunction was
granted. RBS now filed a countersuit with a prayer for moral damages as it
claimed that its reputation was debased when they failed to air the shows that
they promised to their viewers. RBS relied on the ruling in People vs Manero
and Mambulao Lumber vs PNB which states that a corporation may recover
moral damages if it “has a good reputation that is debased, resulting in social
humiliation”. The trial court ruled in favor of Viva and RBS. The Court of
Appeals affirmed the trial court.
Issues:
1. Whether or not a contract was perfected in the April 2, 1992 meeting

between the representatives of the two corporations.
2. Whether or not a corporation, like RBS, is entitled to an award of
moral damages upon grounds of debased reputation.
CORPORATION LAW
Ruling:
1. No. There is no proof that a contract was perfected in the said meeting.
Lopez’ testimony about the contract being written in a napkin is not
corroborated because the napkin was never produced in court. Further, there
is no meeting of the minds because Del Rosario’s offer was of 104 films for
P60 million was not accepted. And that the alleged counter-offer made by
Lopez on the same day was not also accepted because there’s no proof of such.
The counter offer can only be deemed to have been made days after the April
2 meeting when Santos-Concio sent a letter to Del Rosario containing the
counter-offer. Regardless, there was no showing that Del Rosario accepted.
But even if he did accept, such acceptance will not bloom into a perfected
contract because Del Rosario has no authority to do so.
As a rule, corporate powers, such as the power to enter into contracts

are exercised by the Board of Directors. But this power may be delegated to a
corporate committee, a corporate officer or corporate manager. Such a
delegation must be clear and specific. In the case at bar, there was no such
delegation to Del Rosario. The fact that he has to present the counteroffer to
the Board of Directors of Viva is proof that the contract must be accepted first
by the Viva’s Board. Hence, even if Del Rosario accepted the counter-offer,
it did not result to a contract because it will not bind Viva sans authorization.
2. No. 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 call be
experienced only by one having a nervous system. No moral damages can be
awarded to a juridical person. The statement in the case of People vs Manero
and Mambulao Lumber vs PNB is a mere obiter dictum hence it is not binding
as a jurisprudence.
CORPORATION LAW
YAO KA SIN TRADING, owned and operated by YAO KA SIN, vs.

HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT
CORPORATION, represented by its President-Chairman,
CONSTANCIO B. MALAGNA
G.R. No. L-53820, June 15, 1992, DAVIDE, JR., J.
The Board may enter into contracts through the president. The
president may only enter into contracts upon authority of the Board. Hence,
any agreement signed by the president is subject to approval by the Board.
Unlike a general manager, the president has no apparent authority to enter
into binding contracts with third persons.
Facts:
In 1973, Constancio Maglana, president of Prime White Cement

Corporation, sent an offer letter to Yao Ka Sin Trading. The offer states that
Prime White is willing to sell 45,000 bags of cement at P24.30 per bag. The
offer letter was received by Yao Ka Sin’s manager, Henry Yao. Yao accepted
the letter and pursuant to the letter, he sent a check in the amount of
P243,000.00 equivalent to the value of 10,000 bags of cement. However, the
Board of Directors of Prime White rejected the offer letter sent by Maglana
but it considered Yao’s acceptance letter as a new contract offer hence the
Board sent a letter to Yao telling him that Prime White is instead willing to
sell only 10,000 bags to Yao Ka Sin and that he has ten days to reply; that if
no reply is made by Yao then they will consider it as an acceptance and that
thereafter Prime White shall deposit the P243k check in its account and then
deliver the cements to Yao Ka Sin. Henry Yao never replied.
Later, Yao Ka Sin sued Prime White to compel the latter to comply with
what Yao Ka Sin considered as the true contract, i.e., 45,000 bags at P24.30
per bag. Prime White in its defense averred that although Maglana is
empowered to sign contracts in behalf of Prime White, such contracts are still
subject to approval by Prime White’s Board, and then it still requires further
approval by the National Investment and Development Corporation (NIDC),
a government owned and controlled corporation because Prime White is a
subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a binding contract
because it was made under the apparent authority of Maglana. The trial court
ruled in favor of Yao Ka Sin. The Court of Appeals reversed the trial court.
Issue:
Whether or not the president of a corporation is clothed with apparent

authority to enter into binding contracts with third persons without the
authority of the Board
CORPORATION LAW
Ruling:
No. The Board may enter into contracts through the president. The
president may only enter into contracts upon authority of the Board. Hence,
any agreement signed by the president is subject to approval by the Board.
Unlike a general manager (like the case of Francisco vs GSIS), the
president has no apparent authority to enter into binding contracts with third
persons. Further, if indeed the by-laws of Prime White did provide Maglana
with apparent authority, this was not proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the general manner,
by which the corporation holds out an officer or agent as having power to act
or, in other words, the apparent authority with which it clothes him to act in
general or (2) acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or without the scope of his
ordinary powers. These are not present in this case.
Also, the subsequent letter by Prime White to Yao Ka Sin is binding

because Yao Ka Sin’s failure to respond constitutes an acceptance, per stated
in the letter itself – which was not contested by Henry Yao during trial.
CORPORATION LAW
JASMIN SOLER vs. COURT OF APPEALS, COMMERCIAL

BANK OF MANILA, and NIDA LOPEZ
G.R. No. 123892. May 21, 2001, PARDO, J.
If a corporation knowingly permits one of its officers, or any other

agent, to act within the scope of an apparent authority, it holds him out to the
public as possessing the power to do those acts; and thus, the corporation
will, as against anyone who has in good faith dealt with it through such agent,
be estopped from denying the agents authority.
Facts:
Jazmin Soler is a Fine Arts graduate of the University of Sto. Tomas,

Manila. She is a well-known licensed professional interior designer. Rosario
Pardo, a friend of Soler, asked her to talk to Nida Lopez, who was manager of
the COMBANK Ermita Branch for they were planning to renovate the branch
offices.
Even prior to November 1986, petitioner and Nida Lopez knew each
other because of Rosario Pardo, the latter’s sister. During their meeting,
petitioner was hesitant to accept the job because of her many out of town
commitments, and also considering that Ms. Lopez was asking that the
designs be submitted by December 1986, which was such a short notice. Ms.
Lopez insisted, however, because she really wanted petitioner to do the design
for renovation. Petitioner acceded to the request. Ms. Lopez assured her that
she would be compensated for her services. Petitioner even told Ms. Lopez
that her professional fee was ten thousand pesos (P10,000.00), to which Ms.
Lopez acceded.
After a few days, Petitioner repeatedly demanded payment for her

services but Ms. Lopez just ignored the demands. In February 1987, by chance
petitioner and Ms. Lopez saw each other in a concert at the Cultural Center of
the Philippines. Petitioner inquired about the payment for her services, Ms.
Lopez curtly replied that she was not entitled to it because her designs did not
conform to the banks policy of having a standard design, and that there was
no agreement between her and the bank.
To settle the controversy, petitioner referred the matter to her lawyers,

who wrote Ms. Lopez on May 20, 1987, demanding payment for her
professional fees in the amount of P10,000.00 which Ms. Lopez ignored.
Hence, on June 18, 1987, the lawyers wrote Ms. Lopez once again demanding
the return of the blueprint copies petitioner submitted which Ms. Lopez
refused to return.
On October 13, 1987, petitioner filed at the RTC a complaint against

COMBANK and Ms. Lopez for collection of professional fees and damages.
CORPORATION LAW
COMBANK contends that there was no contract between petitioner,

Nida Lopez and the bank. Whereas, petitioner maintained that there was a
perfected contract between her and the bank which was facilitated through
Nida Lopez. According to petitioner there was an offer and an acceptance of
the service she rendered to the bank.
Issue:
Whether or not Nida Lopez, the manager of the bank branch, had
authority to bind the bank in the transaction.
Ruling:
Yes. It is familiar doctrine that if a corporation knowingly permits one

of its officers, or any other agent, to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those
acts; and thus, the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped from denying the agents
authority.
Also, petitioner may be paid on the basis of quantum meruit. It is

essential for the proper operation of the principle that there is an acceptance
of the benefits by one sought to be charged for the services rendered under
circumstances as reasonably to notify him that the lawyer performing the task
was expecting to be paid compensation therefor. The doctrine of quantum
meruit is a device to prevent undue enrichment based on the equitable
postulate that it is unjust for a person to retain benefit without paying for it.
The designs petitioner submitted to Ms. Lopez were not returned. Ms.
Lopez, an officer of the bank as branch manager used such designs for
presentation to the board of the bank. Thus, the designs were in fact useful to
Ms. Lopez for she did not appear to the board without any designs at the time
of the deadline set by the board.
CORPORATION LAW
FRED M. HARDEN, J.D. HIGHSMITH, and JOHN C. HART, in

their own behalf and in that all other stockholders of the Balatoc
Mining Company, etc. vs. BENGUET CONSOLIDATED MINING
COMPANY, BALATOC MINING COMPANY, H. E. RENZ, JOHN W.
JAUSSERMANN, and A. W. BEAM
G.R. No. L-37331, March 18, 1933, STREET, J.:
Under the Corporation Law of 1925 provides that if the person who
allegedly violated the provisions of said law is a corporation, the proper
action is a quo warranto which should be initiated by the Attorney-General
or its deputized provincial fiscal and not a private action.
Facts:
Benguet Consolidated Mining (BCM) was organized in June 1903 as

a sociedad anonima in conformity with Spanish Law. Balatoc Mining Co. was
organized in December 1925 as a corporation in conformity with Act 1459
(Corporation Law). Harden et al. are stockholders of Balatoc Mining.
When Balatoc Mining was first organized, the properties it acquired

were largely undeveloped and the original stockholders were unable to supply
the means needed for profitable operation.
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 filed
an action seeking to annul the certificate covering the 600,000 shares of stock
transferred to Benguet.
CORPORATION LAW
Issue:
Whether or not Harden’s action will prosper
Ruling:
No. The Corporation Law of 1925 subjects sociedades anonimas to its

provisions “so far as such provisions may be applicable”. In 1929, the
Corporation Law was amended and the prohibition cited by Harden was so
modified as merely to prohibit any such corporation from holding more than
fifteen per centum of the outstanding capital stock of another such
corporation.
Further and more importantly, the Corporation Law of 1925 provides that if
the person who allegedly violated the provisions of said law is a corporation,
the proper action is a quo warranto which should be initiated by the Attorney-
General or its deputized provincial fiscal and not a private action as the one
filed by Harden.
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…
CORPORATION LAW
LUNETA MOTOR COMPANY vs. A.D. SANTOS, INC., ET AL.

G.R. No. L-17716, July 31, 1962, DIZON, J.
While under the Corporation Law, a corporation may purchase, hold,

and otherwise deal in such real and personal property, this is qualified by “
for the purpose for which the corporation was formed may permit and the
transaction of its lawful business may reasonably and necessarily require.”
Facts:
In a decision of the Public Service Commission dismissed Luneta

Motor Company’s application for the approval of the sale in its favor, made
by the Sheriff of the City of Manila, of the certificate of public convenience
granted before the war to Nicolas Concepcion. The certificate would have
allowed LMC to operate a taxicab service of 27 units in the City of Manila
and therefrom to any point in Luzon.
On December 31, 1941, to secure payment of a loan evidenced by a

promissory note executed by Nicolas Concepcion and guaranteed by one
Placido Esteban in favor of petitioner, Concepcion executed a chattel
mortgage covering the above mentioned certificate in favor of petitioner.
To secure payment of a subsequent loan obtained by Concepcion from

the Rehabilitation Finance Corporation, he constituted a second mortgage on
the same certificate. This second mortgage was approved by the respondent
Commission, subject to the mortgage lien in favor of petitioner.
The certificate was later sold to Francisco Benitez, Jr., who resold it to
Rodi Taxicab Company. Both sales were made with assumption of the
mortgage in favor of the RFC, and were also approved provisionally by the
Commission, subject to petitioner's lien.
On October 10, 1953 petitioner filed an action to foreclose the chattel

mortgage executed in its favor by Concepcion in view of the failure of the
latter and his guarantor, Placido Esteban, to pay their overdue account. While
the case was pending, the RFC also instituted foreclosure proceedings on its
second chattel mortgage.
Before the death of Amador D. Santos, he sold all his rights and
interests in the certificate of public convenience in question to respondent
A.D. Santos, Inc. The latter opposed petitioner’s application on the ground
that under the petitioner's Articles of Incorporation, it was not authorized to
engage in the taxicab business or operate as a common carrier.
Issue:
Whether or not Luneta Motors is authorized to engage in the

taxicab business or operate as a common carrier
CORPORATION LAW
Ruling:
No. While it is not denied that under the Corporation Law, a corporation
may purchase, hold, and otherwise deal in such real and personal property,
this is qualified by “ for the purpose for which the corporation was formed
may permit and the transaction of its lawful business may reasonably and
necessarily require.”
There is thus a need to determine whether the purpose for which Luneta
Motor was organized and the transaction on its lawful business reasonably and
necessarily require the purchase and holding by it of a Certificate of Public
Convenience and thus, give it additional authority to operate as a common
carrier.
Luneta Motor’s corporate purposes are to carry on a general mercantile

and commercial business; operate and deal in and concerning automobile and
automobile accessories business in all its multifarious ramifications; to
operate and otherwise dispose of vessels and boats; to own and operate
steamships and sailing ships and other floating crafts and deal in the same;
engage in the Philippines and elsewhere in the transportation of persons,
merchandise and chattels by water.
The fact that Luneta Motor may engage in the transportation of persons
by water does not mean that it may engage in the business of land
transportation-- an entirely different line of business.
It could not thus engage in this line of business, it follows that it may
not acquire a certificate of public convenience to operate a taxicab service
because such acquisition would be without purpose and would have no
necessary connection with Luneta Motor’s legitimate business.
CORPORATION LAW
TAM WING TAK vs. HON. RAMON P. MAKASIAR (in his

Capacity as Presiding Judge of the RTC of Manila, Branch 35) and
ZENON DE GUIA (in his capacity as Chief State Prosecutor)
G.R. No. 122452, January 29, 200, 1QUISUMBING, J.:
For a derivative suit to prosper, it is required that the minority

stockholder suing for and on behalf of the corporation must allege in his
complaint that he is suing on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated who may wish to join
him in the suit.
Facts:
Sometime before November 1992, Vic Ang Siong issued a check to

Concord-World Properties, Inc. The check amounted to P83.5 million. The
check however bounced. In November 1992, Tam Wing Tak filed an
affidavit-complaint for violation of the Anti-Bouncing Checks Law against
Ang Siong. The complaint alleged that a check for the amount of
P83,550,000.00, issued by Vic Ang Siong in favor of Concord, was
dishonored when presented for encashment.
Vic Ang Siong sought the dismissal of the case on two grounds: First,
that petitioner had no authority to file the case on behalf of Concord, the payee
of the dishonored check, since the firms board of directors had not empowered
him to act on its behalf. Second, he and Concord had already agreed to
amicably settle the issue after he made a partial payment of P19,000,000.00
on the dishonored check.
The City Prosecutor dismissed the case on the grounds that: (1) that
petitioner lacked the requisite authority to initiate the criminal complaint for
and on Concords behalf; and (2) that Concord and Vic Ang Siong had already
agreed upon the payment of the latters balance on the dishonored check.
Petitioner moved for reconsideration but it was denied. Petitioner

appealed the dismissal of his complaint by the City Prosecutor to the Chief
State Prosecutor but the Chief State Prosecutor dismissed the appeal and the
subsequent motion for reconsideration was also denied.
Petitioner then filed a case to compel the Chief State Prosecutor to file
or cause the filing of an information charging Vic Ang Siong with violation
of B.P. Blg. 22. For utter lack of merit, the petition for mandamus of petitioner
was denied and dismissed, hence, the instant petition.
Issue:
May the suit be considered a derivative suit where the Board’s

authorization may not be had?
CORPORATION LAW
Ruling:
No. For a derivative suit to prosper, it is required that the minority

stockholder suing for and on behalf of the corporation must allege in his
complaint that he is suing on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated who may wish to join
him in the suit.
There is no showing that petitioner has complied with the foregoing

requisites. It is obvious that petitioner has not shown any clear legal right
which would warrant the overturning of the decision of public respondents to
dismiss the complaint against Vic Ang Siong.
CORPORATION LAW
CENTRAL TEXTILE MILLS, INC. vs. NATIONAL WAGES AND

PRODUCTIVITY COMMISSION
G.R. No. 104102. August 7, 1996, ROMERO, J.
Prior to SEC approval of the increase in the authorized capital stock,

and despite the Board resolution approving the increase in capital stock, and
the receipt of payment on the future issues of the shares from the increased
capital stock, such funds do not constitute part of the capital stock of the
corporation until approval of the increase by SEC.
Facts:
On December 29, 1990, respondent Regional Tripartite Wages and

Productivity Board-NCR (the Board) issued a WAGE ORDER which
mandated a P12.00 increase in the minimum daily wage of all employees and
workers in the private sector in the NCR, but exempted from its application
distressed employers whose capital has been impaired by at least 25% in the
preceding year.
The “Guidelines on Exemption From Compliance With the Prescribed

Wage/Cost of Living Allowance Increase Granted by the Regional Tripartite
Wage and Productivity Boards,” issued on February 25, 1991, defined
“capital” as the “paid-up capital at the end of the last full accounting
period (in case of corporations).” Under said guidelines, “(a)n applicant firm
may be granted exemption from payment of the prescribed increase in
wage/cost-of-living allowance for a period not to exceed one (1) year from
effectivity of the Order x x x when accumulated losses at the end of the
period under review have been impaired by at least 25 percent the paid-
up capital at the end of the last full accounting period preceding the
application.”
Petitioner Central Textile Mills filed an application for exemption from

compliance with the subject wage order due to financial losses.
The Board’s Vice p-Chairman, Ernesto Gorospe, disapproved of

petitioner’s application for exemption after concluding form the documents
submitted that petitioner sustained an impairment of only 22.41%.
Petitioner’s motion for reconsideration was likewise dismissed by the

Board, which opined that petitioner’s total paid-up capital of P305,767,
900.00 should be the basis for determining the capital impairment of
petitioner, instead of the authorized capital stock of P128M which petitioner
insists should be the basis of computation. . The Board also noted that
petitioner did not file with the SEC its board resolution approving an
increase in petitioner’s authorized capital stock. Neither did petitioner file
CORPORATION LAW
any petition to amend its AOI brought about by such increase in its
capitalization.
Petitioner argues that its authorized capital stock, not its unauthorized
paid-up capital, should be used in determining its capital impairment. Citing
two SEC Opinions which interpreted Sec 38 of the Corporation Code, it
claims that “the capital stock of a corporation stand(s) increased or decreased
only from and after approval and the issuance of the certificate of filing of
increase of capital stock.
Issue:
Whether petitioner’s authorized capital stock should be the basis for

determining its capital impairment. (Yes)
Held:
The guidelines on exemption specifically refer to paid-up capital, not

authorized capital stock, as the basis of capital impairment for exception from
the subject wage order.
The records reveal, however, that petitioner included in its total paid-
up capital payments on advance subscriptions, although the proposed
increase in its capitalization had not yet been approved by, let alone presented
for the approval of, the SEC.
These payments cannot as yet be deemed part of petitioner’s paid-up

capital, technically speaking, because its capital stock has not yet been legally
increased.
Thus, it's authorized capital stock in the year when exemption from the
subject wage order was sought stood at P128M, which was impaired by losses
of nearly 50%.
Since the subject wage order exempts from its coverage employers
whose capital has been impaired by at least 25%, and petitioner suffered losses
of nearly 50%, petitioner qualifies for the exemption and its application for
the same should be approved.
CORPORATION LAW
ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F.

PEREA and SECURITIES & EXCHANGE COMMISSION
vs. COURT OF APPEALS and IGLESIA NI CRISTO
G.R. No. 117897. May 14, 1997. HERMOSISIMA, JR., J.
Sale by the Board of the only property of the corporation without

compliance with the provisions of Sec. 40 of the Corporation Code requiring
the ratification of members representing at least two-thirds of the
membership, would make the sale null and void.
Facts:
In 1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES

("IDP") was incorporated with the primary purpose of establishing a mosque,
school, and other religious infrastructures in Quezon City.
IDP purchased a 49,652-square meter lot in Tandang Sora, QC, which

was covered by TCT Nos. RT-26520 (176616) and RT-26521 (170567).
When President Marcos declared martial law in 1972, most of the

members of the 1971 Board of Trustees ("Tamano Group") flew to the Middle
East to escape political persecution. Thereafter, two contending groups
claiming to be the IDP Board of Trustees sprung: the Carpizo group and
Abbas group.
In a suit between the two groups, SEC rendered a decision in 1986

declaring both groups to be null and void. SEC recommeded that the a new
by-laws be approved and a new election be conducted upon the approval of
the by-laws. However, the SEC recommendation was not heeded.
In 1989, the Carpizo group passed a Board Resolution authorizing the sale of
the land to Iglesia Ni Cristo ("INC"), and a Deed of Sale was eventually
executed.
In 1991, the Tamano Group filed a petition before the SEC questioning the
sale.
Meanwhile, INC filed a suit for specific performance before RTC

Branch 81 against the Carpizo group. INC also moved to compel a certain
Leticia Ligon (who is apparently the mortgagee of the lot) to surrender the
title. The Tamano group sought to intervene, but the intervention was denied
despite being informed of the pending SEC case. In 1992, the Court
subsequently ruled that the INC as the rightful owner of the land, and ordered
Ligon to surrender the titles for annotation. Ligon appealed to CA and SC, but
her appeals were denied.
CORPORATION LAW
In 1993, the SEC ruled that the sale was null and void . On appeal CA reversed
the SEC ruling.
Issue:
Whether or not the sale between the Carpizo group and INC is null and
void.
Ruling:
Since the SEC has declared the Carpizo group as a void Board of
Trustees, the sale it entered into with INC is likewise void. Without a valid
consent of a contracting party, there can be no valid contract.
In this case, the IDP, never gave its consent, through a legitimate Board
of Trustees, to the disputed Deed of Absolute Sale executed in favor of INC.
Therefore, this is a case not only of vitiated consent, but one where consent
on the part of one of the supposed contracting parties is totally wanting.
Ineluctably, the subject sale is void and produces no effect whatsoever.
Further, the Carpizo group failed to comply with Section 40 of the

Corporation Code, which provides that: " ... a corporation may, by a majority
vote of its board of directors or trustees, sell, lease, exchange, mortgage,
pledge or otherwise dispose of all or substantially all of its property and
assets... when authorized by the vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock; or in case of non-stock
corporation, by the vote of at least two-thirds (2/3) of the members, in a
stockholders' or members' meeting duly called for the purpose...."
The subject lot constitutes the only property of IDP. Hence, its sale to
a third-party is a sale or disposition of all the corporate property and assets of
IDP. For the sale to be valid, the majority vote of the legitimate Board of
Trustees, concurred in by the vote of at least 2/3 of the bona fide members of
the corporation should have been obtained. These twin requirements were not
met in the case at bar.
Ancillary Issue:
Whether or not the Ligon ruling constitutes res judicata.
Ruling:
NO. Section 49(b), Rule 39 enunciates the first concept of res judicata
known as "bar by prior judgment," whereas, Section 49(c), Rule 39 is referred
to as "conclusiveness of judgment."
There is "bar by former judgment" when, between the first case where
the judgment was rendered, and the second case where such judgment is
CORPORATION LAW
invoked, there is identity of parties, subject matter and cause of action. When
the three identities are present, the judgment on the merits rendered in the first
constitutes an absolute bar to the subsequent action. But where between the
first case wherein judgment is rendered and the second case wherein such
judgment is invoked, there is only identity of parties but there is no identity
of cause of action, the judgment is conclusive in the second case, only as to
those matters actually and directly controverted and determined, and not as to
matters merely involved therein. This is what is termed "conclusiveness of
judgment."
Neither applies to the case at bar. There is no "bar by former judgment"

since while there may be identity of subject matter (IDP property) in both
cases, there is no identity of parties. The principal parties in the first case were
Ligon and the Iglesia Ni Cristo. The IDP can not be considered essentially a
formal party thereto for the simple reason that it was not duly represented by
a legitimate Board of Trustees.
Res Judicata in the form of "conclusiveness of judgment" cannot

likewise apply for the reason that the primary issue in the first case is the
possession of the titles, and not the sale of the land, as in this case.
CORPORATION LAW
RAMON DE LA RAMA vs. MA-AO SUGAR CENTRAL CO., INC.

GR Nos. L-17504 & L-17506, Feb 28, 1969, CAPISTRANO, J
When the investment is necessary to accomplish its purpose or purposes

as stated in it articles of incorporation, the approval of the stockholders is not
necessary.
Facts:
Plaintiffs are suing as stockholders on their own behalf and for the
benefit of the Ma-ao Sugar Central Co., Inc. The complaint stated five causes
of action, to wit: (1) for alleged illegal and ultra-vires acts consisting of self-
dealing irregular loans, and unauthorized investments; (2) for alleged gross
mismanagement; (3) for alleged forfeiture of corporate rights warranting
dissolution; (4) for alleged damages and attorney's fees; and (5) for
receivership.
The case presented several points of which are the bases for the causes
of action; however, I will only focus on what is relevant to the topic.
After the trial, the lower court held a decision in which not all of
plaintiff’s prayers were granted. One such prayer is to hold the individual
defendants liable for their ultra vires act of investing in Philippine Fiber
Processing Co., Inc., a company engaged in the manufacture of sugar bags,
the amount of P655,000 in shares of stock of the defendant corporation by
collecting, producing and/or paying to the defendant corporation the
outstanding balance of the amounts so diverted and still unpaid to defendant
corporation.
The plaintiffs submitted that the investment of corporate funds of the Ma-
ao Sugar Central Co., Inc., in the Philippine Fiber Processing Co., Inc. was a
violation of Sec. 17 of the Corporation Law which provides:
No corporation organized under this act shall invest its funds in any
other corporation or business or for any purpose other than the main
purpose for which it was organized unless its board of directors has
been so authorized in a resolution by the affirmative vote of
stockholders holding shares in the corporation entitling them to
exercise at least two-thirds of the voting power on such proposal at the
stockholders' meeting called for the purpose.
The lower court held that “the law should be understood to mean as the
authorities state, that it is prohibited to the Corporation to invest in shares
of another corporation unless such an investment is authorized by 2/3 of
the voting power of the stockholders, if the purpose of the corporation in
which investment is made is foreign to the purpose of the investing
corporation because surely there is more logic in the stand that if the
investment is made in a corporation whose business is important to the
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investing corporation and would aid it in its purpose, to require authority of

the stockholders would be to unduly curtail the Power of the Board of
Directors; the only trouble here is that the investment was made without any
previous authority of the Board of Directors but was only ratified afterwards;
this of course would have the effect of legalizing the unauthorized act.”
On the other hand, the defendants, as appellees, invoked Sec. 13, par. 10
of the Corporation Law, which provides:
SEC. 13. — Every corporation has the power:
xxxxxxxxx
(9) To enter into any obligation or contract essential to the proper
administration of its corporate affairs or necessary for the proper
transaction of the business or accomplishment of the purpose for which
the corporation was organized;
(10) Except as in this section otherwise provided, and in order to
accomplish its purpose as stated in the articles of incorporation, to
acquire, hold, mortgage, pledge or dispose of shares, bonds, securities
and other evidences of indebtedness of any domestic or foreign
corporation.
A reading of the two afore-quoted provisions shows that there is need for
interpretation of the apparent conflict.
Issue:
Whether or not the investment made by the defendants were not in

violation of the law? (Yes)
Ruling:
The SC explained by quoting the explanation of Professor Sulpicio S.

Guevara of the University of the Philippines, College of Law, a well-known
authority in commercial law:
“[Sec. 13] Power to acquire or dispose of shares or securities. — A

private corporation, in order to accomplish its purpose as stated in its articles
of incorporation, and subject to the limitations imposed by the Corporation
Law, has the power to acquire, hold, mortgage, pledge or dispose of shares,
bonds, securities, and other evidences of indebtedness of any domestic or
foreign corporation. Such an act, if done in pursuance of the corporate
purpose, does not need the approval of the stockholders; but when the
purchase of shares of another corporation is done solely for investment
and not to accomplish the purpose of its incorporation, the vote of
approval of the stockholders is necessary. In any case, the purchase of such
shares or securities must be subject to the limitations established by the
Corporation Law.
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“[Sec. 17] Power to invest corporate funds. — A private corporation

has the power to invest its corporate funds in any other corporation or
business, or for any purpose other than the main purpose for which it was
organized, provided that 'its board of directors has been so authorized in a
resolution by the affirmative vote of stockholders holding shares in the
corporation entitling them to exercise at least two-thirds of the voting power
on such a proposal at a stockholders' meeting called for that purpose,' and
provided further, that no agricultural or mining corporation shall in anywise
be interested in any other agricultural or mining corporation. When the
investment is necessary to accomplish its purpose or purposes as stated
in it articles of incorporation, the approval of the stockholders is not
necessary.”
Therefore, the SC agrees with the lower court ruling. The investment
by a sugar central in the equity of a sugar bag manufacturing company falls
within the implied powers of the sugar central as part of its primary purpose
and does not need ratification by the stockholders.
CORPORATION LAW
NIELSON & CO. INC. vs. LEPANTO CONSOLIDATED MINING

COMPANY
GR L-21601, 28 December 1968, ZALDIVAR, J.
But a share of stock coming from stock dividends declared cannot be

issued to one who is not a stockholder of a corporation.
Facts:
On January 30, 1937, the parties have entered into an operating

agreement wherein Nielson & Co. would operate and manage the mining
properties owned by Lepanto Consolidated Mining Co. for a period of five
years. Before the lapse of the five year period, the parties have renewed the
contract for another five years with modifications made by Lepanto on the
management fee.
On its modified contract Nielson will receive (1) 10% of the dividends
declared and paid, when and as paid during the period of the contract and at
the end of each year, (2) 10% of any depletion reserve that may set up, and
(3) 10% of any amount expended during the year out of surplus earnings for
capital account.
In January, 1942 operation of the mining properties was disrupted on

account of the war. The Japanese forces thereafter occupied the mining
properties, operated the mines during the continuance of the war, and who
were ousted from the mining properties only in August of 1945.
After the mining properties were liberated from the Japanese forces, Lepanto
took possession thereof and embarked in rebuilding and reconstructing the
mines and mill. The restoration lasted for nearly three years and the mines
have resumed its operation under the exclusive management of Lepanto.
Shortly after the mines were liberated from the Japanese invaders in
1945, a disagreement arose between NIELSON and LEPANTO over the
status of the operating contract in question which as renewed expired in 1947.
Issue:
Whether or not Nielson is entitled to his share in the stock dividends.
Ruling:
Stock dividends cannot be issued to a person who is not a stockholder in

payment of services rendered.
Section 16 of the Corporation Law, in part, provides a follows:
No corporation organized under this Act shall create or issue bills, notes
or other evidence of debt, for circulation as money, and no corporation shall
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issue stock or bonds except in exchange for actual cash paid to the corporation
or for: (1) property actually received by it at a fair valuation equal to the par
or issued value of the stock or bonds so issued; and in case of disagreement
as to their value, the same shall be presumed to be the assessed value or the
value appearing in invoices or other commercial documents, as the case may
be; and the burden or proof that the real present value of the property is greater
than the assessed value or value appearing in invoices or other commercial
documents, as the case may be, shall be upon the corporation, or for (2) profits
earned by it but not distributed among its stockholders or members; Provided,
however, That no stock or bond dividend shall be issued without the approval
of stockholders representing not less than two-thirds of all stock then
outstanding and entitled to vote at a general meeting of the corporation or at a
special meeting duly called for the purpose.
In the case at bar Nielson cannot be paid in shares of stock which form
part of the stock dividends of Lepanto for services it rendered under the
management contract. We sustain the contention of Lepanto that the
understanding between Lepanto and Nielson was simply to make the cash
value of the stock dividends declared as the basis for determining the amount
of compensation that should be paid to Nielson, in the proportion of 10% of
the cash value of the stock dividends declared. In other words, Nielson must
still be paid his 10% fee using as the basis for computation the cash value of
the stock dividends declared.
Moreover, from the above-quoted provision of Section 16 of the

Corporation Law, the consideration for which shares of stock may be issued
are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock are
given the special name “stock dividends” only if they are issued in lieu of
undistributed profits. If shares of stocks are issued in exchange of cash or
property then those shares do not fall under the category of “stock dividends”.
A corporation may legally issue shares of stock in consideration of

services rendered to it by a person not a stockholder, or in payment of its
indebtedness. A share of stock issued to pay for services rendered is
equivalent to a stock issued in exchange of property, because services is
equivalent to property. Likewise a share of stock issued in payment of
indebtedness is equivalent to issuing a stock in exchange for cash. But a share
of stock thus issued should be part of the original capital stock of the
corporation upon its organization, or part of the stocks issued when the
increase of the capitalization of a corporation is properly authorized. In other
words, it is the shares of stock that are originally issued by the corporation
and forming part of the capital that can be exchanged for cash or services
rendered, or property; that is, if the corporation has original shares of stock
unsold or unsubscribed, either coming from the original capitalization or from
the increased capitalization. Those shares of stock may be issued to a person
who is not a stockholder, or to a person already a stockholder in exchange for
services rendered or for cash or property. But a share of stock coming from
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stock dividends declared cannot be issued to one who is not a stockholder of

a corporation.
A “stock dividend” is any dividend payable in shares of stock of the

corporation declaring or authorizing such dividend.
So, a stock dividend is actually two things: (1) a dividend, and (2) the
enforced use of the dividend money to purchase additional shares of stock at
par. When a corporation issues stock dividends, it shows that the corporation’s
accumulated profits have been capitalized instead of distributed to the
stockholders or retained as surplus available for distribution, in money or
kind, should opportunity offer.
Far from being a realization of profits for the stockholder, it tends

rather to postpone said realization, in that the fund represented by the new
stock has been transferred from surplus to assets and no longer available for
actual distribution. Thus, it is apparent that stock dividends are issued only to
stockholders. This is so because only stockholders are entitled to dividends.
They are the only ones who have a right to a proportional share in that part of
the surplus which is declared as dividends. A stock dividend really adds
nothing to the interest of the stockholder; the proportional interest of each
stockholder remains the same.
If a stockholder is deprived of his stock dividends – and this happens if

the shares of stock forming part of the stock dividends are issued to a non-
stockholder — then the proportion of the stockholder’s interest changes
radically. Stock dividends are civil fruits of the original investment, and to the
owners of the shares belong the civil fruits.
CORPORATION LAW
NATIONAL TELECOMMUNICATIONS COMMISSION

vs. HONORABLE COURT OF APPEALS and PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY
G.R. No. 127937. July 28, 1999, PURISIMA, J.:
Stock dividend is the amount that the corporation transfers from its
surplus profit account to its capital account. It is the same amount that can
loosely be terms as the “trust fund” of the corporation
Facts:
NTC served on the PLDT the following assessment notices and

demands for payment: 1. The amount of P7,495,161.00 as supervision and
regulation fee under sec. 40(e) of the Public Service Act (PSA) of 1988,
computed at P0.50 per P100.00 of the PLDT’s outstanding capital stock as at
Dec. 31, 1987 which then consisted of Serial Preferred Stock amounting to
P1,277,934,390.00 and Common Stock of P221,097,785.00 or a total of
P1,499,032,175.00 2. The amount of P9,000,000.00 as permit fee under Sec.
40(f) of the PSA for the approval of the PLDT increase of its authorized
capital stock from P2.7B to P4.5B; and 3. The amounts of P12,261,600.00 and
P33,472,030.00 as permit fees under sec. 40(g) of the PSA in connection with
the Commissions decisions, approving the PLDT equity participation in the
Fiber Optic Interpacific Cable systems and X-5 Service Improvement and
Expansion Program. PLDT challenged the aforesaid assessments that these
were being made to 1. Raise revenues and not as mere reimbursements 2. The
assessments should only have been on the basis of the par values PLDT’s
outstanding capital stock and 3. NTC has no authority to compel PLDT of the
assessed fees under Sec. 40(f) for the increase since NTC did not render any
supervisory or regulatory activity and incurred no expenses in relation thereto.
NTC denied the protest of PLDT for lack of merit, MR denied. PLDT
appealed with the CA, CA modified the NTC decision changing the basis of
the computation of supervision and regulation fees under sec. 40(f) of the
PSA.
Issue:
Whether or not the computation of supervision and regulation fees

under Section 40 (F) of the Public Service Act should be based on the par
value of the subscribed capital stock?
Ruling:
The law in point is clear and categorical. The basis for computation of
the fee to be charged by NTC on PLDT is the capital stock subscribed or paid
and not the property and equipment.
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It bears stressing that it is not the NTC that imposed such a fee. It is the
legislature itself. Since Congress has the power to exercise the State inherent
powers of Police Power, Eminent Domain and Taxation, the distinction
between police power and the power to tax, which could be significant if the
exercising authority were mere political subdivisions, would not be of any
moment when, as in the case under consideration, Congress itself exercises
the power. All that is to be done would be to apply and enforce the law when
sufficiently definitive and not constitutional infirm.
CORPORATION LAW
REPUBLIC PLANTERS BANK vs. HON. ENRIQUE A. AGANA, SR.,

as Presiding Judge, Court of First Instance of Rizal, Branch XXVIII,
Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT
CORPORATION and ADALIA F. ROBES
G.R. No. 51765. March 3, 1997, HERMOSISIMA, JR., J.:
Interest bearing stocks on which the corporation agrees absolutely to

pay interest before dividends are paid to the common stockholders, is legal
only when construed as requiring payment of interest as dividends from net
earnings or surplus only.
Facts:
On 18 September 1961, the Robes-Francisco Realty & Development

Corporation (RFRDC) secured a loan from the Republic Planters Bank in the
amount of P120,000.00. As part of the proceeds of the loan, preferred shares
of stocks were issued to RFRDC through its officers then, Adalia F. Robes
and one Carlos F. Robes. In other words, instead of giving the legal tender
totaling to the full amount of the loan, which is P120,000.00, the Bank lent
such amount partially in the form of money and partially in the form of stock
certificates numbered 3204 and 3205, each for 400 shares with a par value of
P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock
certificates were in the name of Adalia F. Robes and Carlos F. Robes, who
subsequently, however, endorsed his shares in favor of Adalia F. Robes.
Said certificates of stock bear the following terms and conditions: "The
Preferred Stock shall have the following rights, preferences, qualifications and
limitations, to wit: 1. Of the right to receive a quarterly dividend of 1%,
cumulative and participating. xxx 2. That such preferred shares may be
redeemed, by the system of drawing lots, at any time after 2 years from the
date of issue at the option of the Corporation."
On 31 January 1979, RFRDC and Robes proceeded against the Bank

and filed a complaint anchored on their alleged rights to collect dividends
under the preferred shares in question and to have the bank redeem the same
under the terms and conditions of the stock certificates. The bank filed a
Motion to Dismiss 3 private respondents' Complaint on the following
grounds: (1) that the trial court had no jurisdiction over the subject-matter of
the action; (2) that the action was unenforceable under substantive law; and
(3) that the action was barred by the statute of limitations and/or laches.
The bank's Motion to Dismiss was denied by the trial court in an order
dated 16 March 1979. The bank then filed its Answer on 2 May 1979.
Thereafter, the trial court gave the parties 10 days from 30 July 1979 to submit
their respective memoranda after the submission of which the case would be
deemed submitted for resolution. On 7 September 1979, the trial court
rendered the decision in favor of RFRDC and Robes; ordering the bank to pay
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RFRDC and Robes the face value of the stock certificates as redemption price,
plus 1% quarterly interest thereon until full payment.
The bank filed the petition for certiorari with the Supreme Court,
essentially on pure questions of law.
Issues:
Whether or not the bank can be compelled to redeem the preferred

shares issued to RFRDC and Robes?
Whether RFRDC and Robes are entitled to the payment of certain rate
of interest on the stocks as a matter of right without necessity of a prior
declaration of dividend.
Ruling:
1st Issue: While the stock certificate does allow redemption, the option
to do so was clearly vested in the bank. The redemption therefore is clearly
the type known as "optional". Thus, except as otherwise provided in the stock
certificate, the redemption rests entirely with the corporation and the
stockholder is without right to either compel or refuse the redemption of its
stock. Furthermore, the terms and conditions set forth therein use the word
"may". It is a settled doctrine in statutory construction that the word "may"
denotes discretion, and cannot be construed as having a mandatory effect. The
redemption of said shares cannot be allowed.
The Central Bank made a finding that the Bank has been suffering from
chronic reserve deficiency, and that such finding resulted in a directive, issued
on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to the
President and Acting Chairman of the Board of the bank prohibiting the latter
from redeeming any preferred share, on the ground that said redemption
would reduce the assets of the Bank to the prejudice of its depositors and
creditors. Redemption of preferred shares was prohibited for a just and valid
reason. The directive issued by the Central Bank Governor was obviously
meant to preserve the status quo, and to prevent the financial ruin of a banking
institution that would have resulted in adverse repercussions, not only to its
depositors and creditors, but also to the banking industry as a whole. The
directive, in limiting the exercise of a right granted by law to a corporate
entity, may thus be considered as an exercise of police power.
2nd Issue: Both Section 16 of the Corporation Law and Section 43 of

the present Corporation Code prohibit the issuance of any stock dividend
without the approval of stockholders, representing not less than two-thirds
(2/3) of the outstanding capital stock at a regular or special meeting duly
called for the purpose. These provisions underscore the fact that payment of
dividends to a stockholder is not a matter of right but a matter of consensus.
Furthermore, "interest bearing stocks", on which the corporation agrees
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absolutely to pay interest before dividends are paid to common stockholders,

is legal only when construed as requiring payment of interest as dividends
from net earnings or surplus only. In compelling the bank to redeem the shares
and to pay the corresponding dividends, the Trial committed grave abuse of
discretion amounting to lack or excess of jurisdiction in ignoring both the
terms and conditions specified in the stock certificate, as well as the clear
mandate of the law.
CORPORATION LAW

G.R. No. 129459. September 29, 1998
A corporation whose primary purpose is to market, distribute, export

and import merchandise, the sale of land is not within the actual or apparent
authority of the corporation acting through its officers, much less when acting
through the treasurer. Likewise Article 1874 and 1878 of the Civil Code
requires that when land is sold through an agent, the agent’s authority must
be in writing, otherwise the sale is void.
Facts:
Plaintiff-appellant San Juan structural and steel fabricators Inc.’s

amended complaint alleged that on February 14, 1989, plaintiff-appellant
entered into an agreement with defendant-appellee Motorich Sales
Corporation for the transfer to it of a parcel of land identified as lot 30, Block
1 of the Acropolis Greens Subdivision located in the district of Murphy,
Quezon City, Metro Manila containing an area of 414 sqm, covered by TCT
no. 362909.
That as stipulated in the agreement of February 14, 1989, plaintiff-

appellant paid the down payment in the sum of P100,000, the balance to be
paid on or before March 2, 19889; that on March 1, 1989,Mr. Andres T. Co,
president of Plaintiff-appellant corporation, wrote a letter to defendant-
appellee Motorich Sales Corporation requesting a computation for the balance
to be paid; that said letter was coursed through the defendant-appellee’s
broker.
Linda Aduca who wrote the computation of the balance; that on March
2, 1989, plaintiff-appellant was ready with the amount corresponding to the
balance, covered by Metrobank cashier’s check no. 004223 payable to
defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and
defendant-appellee were supposed to meet in the plaintiff-appellant’s office
but defendant-appellee’s treasurer, Nenita Lee Gruenbeg did not appear; that
defendant-appelle despite repeated demands and in utter disregard of its
commitments had refused to execute the transfer of rights/deed of assignment
which is necessary to transfer the certificate of title;
That defendant ACL development corporation is impleaded as a

necessary party since TCT no. 362909 is still in the name of said defendant;
while defendant VNM Realty and Development Corporation is likewise
impleaded as a necessary party in view of the fact that it is the transferor of
the right in favor of defendant-appellee Motorich Sales Corporation; that on
April 6, 1989 defendant ACL Development Corporation and Motorich Sales
Corporation entered into a deed of absolute sale whereby the former
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transferred to the latter the subject property; that by reason of said transfer;
the registry of deeds of Quezon City issued a new title in the name of Motorich
Sales Corporation, represented by defendant-appellee Nenita Lee Gruenbeg
and Reynaldo L. Gruenbeg, under TCT no. 3751;
That as a result of defendants-appellees Nenita and Motorich’s bad faith

in refusing to execute a formal transfer of rights/deed of assignment, plaintiff-
appellant suffered moral and nominal damages which may be assessed against
defendant-appellees in the sum of P500,000; that as a result of an unjustified
and unwarranted failure to execute the required transfer or formal deed of sale
in favor of plaintiff-appellant, defendant-appellees should be assessed
exemplary damages in the sum of P100,000; that by reason of the said bad
faith in refusing to execute a transfer in favor of plaintiff-appellant the latter
lost opportunity to construct a residential building in the sum of P100,000 and
that as a consequence of such bad faith, it has been constrained to obtain the
services of counsel at an agreed fee of P100,000 plus appearance fee of for
every appearance in court hearings.
Issues:
Whether or not the corporation’s treasurer act can bind the corporation.
Whether or not the doctrine of piercing the veil of corporate entity is

applicable.
Held:
No. Such contract cannot bind Motorich, because it never authorized or

ratified such sale.
A corporation is a juridical person separate and distinct from its

stockholders or members. Accordingly, the property of the corporation is not
the property of the corporation is not the property of its stockholders or
members and may not be sold by the stockholders or members without express
authorization from the corporation’s board of directors.
Section 23 of BP 68 provides the Board of Directors or Trustees –

Unless otherwise provided in this code, the corporate powers of all
corporations formed under this code shall be exercised, all business
conducted, and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the stockholders of
stocks, or where there is no stock, from among the members of the
corporations, who shall hold office for 1 year and until their successors are
elected and qualified.
As a general rule, the acts of corporate officers within the scope of their
authority are binding on the corporation. But when these officers exceed their
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authority, their actions, cannot bind the corporation, unless it has ratified such
acts as is estopped from disclaiming them.
Because Motorich had never given a written authorization to

respondent Gruenbeg to sell its parcel of land, we hold that the February 14,
1989 agreement entered into by the latter with petitioner is void under Article
1874 of the Civil Code. Being inexistent and void from the beginning, said
contract cannot be ratified.
The statutorily granted privilege of a corporate veil may be used only

for legitimate purposes. On equitable consideration, the veil can be
disregarded when it is utilized as a shield to commit fraud, illegality or
inequity, defeat public convenience; confuse legitimate issues; or serve as a
mere alter ego or business conduit of a person or an instrumentality, agency
or adjunct of another corporation.
We stress that the corporate fiction should be set aside when it becomes
a shield against liability for fraud, or an illegal act on inequity committed on
third person. The question of piercing the veil of corporate fiction is
essentially, then a matter of proof. In the present case, however, the court finds
no reason to pierce the corporate veil of respondent Motorich. Petitioner
utterly failed to establish the said corporation was formed, or that it is operated
for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud,
illegality or inequity at the expense of third persons like petitioner.
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CHINA BANKING CORPORATION vs. COURT OF APPEALS, and

VALLEY GOLF and COUNTRY CLUB, INC., G.R. No.
117604. March 26, 1997. KAPUNAN, J.
The power to borrow money is one of those cases where even a special
power of attorney is required under Art. 1878 of the New Civil Code. There is
invariably a need of an enabling act of the corporation to be approved by its
Board of Directors. The argument that the obtaining of loan was in
accordance with the ordinary course of business usages and practices of the
corporation is devoid of merit because the prevailing practice in the
corporation was to explicitly authorize an officer to contract loans in behalf
of the corporation.
Facts:
On 21 August 1974, Galicano Calapatia, Jr., a stockholder of Valley

Golf & Country Club, Inc. (VGCCI), pledged his Stock Certificate 1219 to
China Banking Corporation (CBC). On 16 September 1974, CBC wrote
VGCCI requesting that the pledge agreement be recorded in its books. In a
letter dated 27 September 1974, VGCCI replied that the deed of pledge
executed by Calapatia in CBC's favor was duly noted in its corporate books.
On 3 August 1983, Calapatia obtained a loan of P20,000.00 from CBC,
payment of which was secured by the pledge agreement still existing between
Calapatia and CBC.
Due to Calapatia's failure to pay his obligation, CBC, on 12 April 1985,

filed a petition for extrajudicial foreclosure before Notary Public Antonio T.
de Vera of Manila, requesting the latter to conduct a public auction sale of the
pledged stock. On 14 May 1985, CBC informed VGCCI of the foreclosure
proceedings and requested that the pledged stock be transferred to its name
and the same be recorded in the corporate books.
However, on 15 July 1985, VGCCI wrote CBC expressing its inability

to accede to CBC's request in view of Calapatia's unsettled accounts with the
club. Despite the foregoing, Notary Public de Vera held a public auction on
17 September 1985 and CBC emerged as the highest bidder at P20,000.00 for
the pledged stock. Consequently, CBC was issued the corresponding
certificate of sale. On 21 November 1985, VGCCI sent Calapatia a notice
demanding full payment of his overdue account in the amount of P18,783.24.
Said notice was followed by a demand letter dated 12 December 1985 for the
same amount and another notice dated 22 November 1986 for P23,483.24.
On 4 December 1986, VGCCI caused to be published in the newspaper

Daily Express a notice of auction sale of a number of its stock certificates, to
be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's
own share of stock (Stock Certificate 1219). Through a letter dated 15
December 1986, VGCCI informed Calapatia of the termination of his
membership due to the sale of his share of stock in the 10 December 1986
CORPORATION LAW
auction. On 5 May 1989, CBC advised VGCCI that it is the new owner of
Calapatia's Stock Certificate 1219 by virtue of being the highest bidder in the
17 September 1985 auction and requested that a new certificate of stock be
issued in its name.
On 2 March 1990, VGCCI replied that "for reason of delinquency"

Calapatia's stock was sold at the public auction held on 10 December 1986 for
P25,000.00. On 9 March 1990, CBC protested the sale by VGCCI of the
subject share of stock and thereafter filed a case with the Regional Trial Court
of Makati for the nullification of the 10 December 1986 auction and for the
issuance of a new stock certificate in its name.
On 18 June 1990, the Regional Trial Court of Makati dismissed the

complaint for lack of jurisdiction over the subject matter on the theory that it
involves an intra-corporate dispute and on 27 August 1990 denied CBC's
motion for reconsideration. On 20 September 1990, CBC filed a complaint
with the Securities and Exchange Commission (SEC) for the nullification of
the sale of Calapatia's stock by VGCCI; the cancellation of any new stock
certificate issued pursuant thereto; for the issuance of a new certificate in
petitioner's name; and for damages, attorney's fees and costs of litigation. On
3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in
favor of VGCCI, stating in the main that considering that the said share is
delinquent, VGCCI had valid reason not to transfer the share in the name of
CBC in the books of VGCCI until liquidation of delinquency. Consequently,
the case was dismissed.
On 14 April 1992, Hearing Officer Perea denied CBC's motion for

reconsideration. CBC appealed to the SEC en banc and on 4 June 1993, the
Commission issued an order reversing the decision of its hearing officer;
holding that CBC has a prior right over the pledged share and because of
pledgor's failure to pay the principal debt upon maturity, CBC can proceed
with the foreclosure of the pledged share; declaring that the auction sale
conducted by VGCCI on 10 December 1986 is declared NULL and VOID;
and ordering VGCCI to issue another membership certificate in the name of
CBC. VGCCI sought reconsideration of the order. However, the SEC denied
the same in its resolution dated 7 December 1993. The sudden turn of events
sent VGCCI to seek redress from the Court of Appeals.
On 15 August 1994, the Court of Appeals rendered its decision

nullifying and setting aside the orders of the SEC and its hearing officer on
ground of lack of jurisdiction over the subject matter and, consequently,
dismissed CBC's original complaint. The Court of Appeals declared that the
controversy between CBC and VGCCI is not intra-corporate; nullifying the
SEC orders and dismissing CBC’s complaint. CBC moved for reconsideration
but the same was denied by the Court of Appeals in its resolution dated 5
October 1994. CBC filed the petition for review on certiorari.
CORPORATION LAW
Issue:
Whether CBC is bound by VGCCI's by-laws.
Held:
In order to be bound, the third party must have acquired knowledge of

the pertinent by-laws at the time the transaction or agreement between said
third party and the shareholder was entered into. Herein, at the time the pledge
agreement was executed. VGCCI could have easily informed CBC of its by-
laws when it sent notice formally recognizing CBC as pledgee of one of its
shares registered in Calapatia's name. CBC's belated notice of said by-laws at
the time of foreclosure will not suffice.
By-laws signifies the rules and regulations or private laws enacted by

the corporation to regulate, govern and control its own actions, affairs and
concerns and its stockholders or members and directors and officers with
relation thereto and among themselves in their relation to it. In other words,
by-laws are the relatively permanent and continuing rules of action adopted
by the corporation for its own government and that of the individuals
composing it and having the direction, management and control of its affairs,
in whole or in part, in the management and control of its affairs and activities.
The purpose of a by-law is to regulate the conduct and define the duties
of the members towards the corporation and among themselves. They are self-
imposed and, although adopted pursuant to statutory authority, have no status
as public law.
Therefore, it is the generally accepted rule that third persons are not
bound by by-laws, except when they have knowledge of the provisions either
actually or constructively. For the exception to the general accepted rule that
third persons are not bound by by-laws to be applicable and binding upon the
pledgee, knowledge of the provisions of the VGCCI By-laws must be acquired
at the time the pledge agreement was contracted.
Knowledge of said provisions, either actual or constructive, at the time

of foreclosure will not affect pledgee's right over the pledged share. Article
2087 of the Civil Code provides that it is also of the essence of these contracts
that when the principal obligation becomes due, the things in which the pledge
or mortgage consists maybe alienated for the payment to the creditor.
Further, VGCCI's contention that CBC is duty-bound to know its by-

laws because of Article 2099 of the Civil Code which stipulates that the
creditor must take care of the thing pledged with the diligence of a good father
of a family, fails to convince. CBC was never informed of Calapatia's unpaid
accounts and the restrictive provisions in VGCCI's by-laws.
CORPORATION LAW
Furthermore, Section 63 of the Corporation Code which provides that

"no shares of stock against which the corporation holds any unpaid claim shall
be transferable in the books of the corporation" cannot be utilized by VGCCI.
The term "unpaid claim" refers to "any unpaid claim arising from unpaid
subscription, and not to any indebtedness which a subscriber or stockholder
may owe the corporation arising from any other transaction." Herein, the
subscription for the share in question has been fully paid as evidenced by the
issuance of Membership Certificate 1219. What Calapatia owed the
corporation were merely the monthly dues. Hence, Section 63 does not apply.
CORPORATION LAW
LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES vs.

FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR
G.R. No. 76801 August 11, 1995, PUNO, J.
The general rule is that a corporation, through its broad of directors,

should act in the manner and within the formalities, if any, prescribed by its
charter or by the general law. Thus, directors must act as a body in a meeting
called pursuant to the law or the corporation's by-laws, otherwise, any action
taken therein may be questioned by any objecting director or shareholder. Be
that as it may, jurisprudence tells us that an action of the board of directors
during a meeting, which was illegal for lack of notice, may be ratified either
expressly, by the action of the directors in subsequent legal meeting, or
impliedly, by the corporation's subsequent course of conduct.
Facts:
Lopez Realty, Inc., is a corporation engaged in real estate business,

while petitioner Asuncion Lopez Gonzales is one of its majority shareholders.
Sometime in 1978, Arturo Lopez submitted a proposal relative to the
distribution of certain assets of Petitioner Corporation among its three (3)
main shareholders. The proposal had three (3) aspects, viz: (1) the sale of
assets of the company to pay for its obligations; (2) the transfer of certain
assets of the company to its three (3) main shareholders, while some other
assets shall remain with the company; and (3) the reduction of employees with
provision for their gratuity pay. The proposal was deliberated upon and
approved in a special meeting of the board of directors held on April 17, 1978.
It appears that petitioner corporation approved two (2) resolutions

providing for the gratuity pay of its employees, viz: (a) Resolution No. 6,
Series of 1980 resolving to set aside, twice a year, a certain sum of money for
the gratuity pay of its retiring employees and to create a Gratuity Fund for the
said contingency; and (b) Resolution No. 10, Series of 1980, setting aside the
amount of P157,750.00 as Gratuity Fund covering the period from 1950 up to
1980.
On August 17, 1981, the remaining members of the Board of Directors,

namely: Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened
a special meeting and passed a resolution which provides that: (a) Those who
will be laid off be given the full amount of gratuity; (b) Those who will be
retained will receive 25% of their gratuity (pay) due on September 1, 1981,
and another 25% on January 1, 1982, and 50% to be retained by the office in
the meantime.
Private respondents were the retained employees of petitioner

corporation. In a letter, dated August 31, 1981, private respondents requested
for the full payment of their gratuity pay. Their request was granted in a
special meeting held on September 1, 1981.
CORPORATION LAW
Issue:
Whether or not the subject resolutions requires for their validity

stockholders’ approval.
Ruling:
YES. The Court is not persuaded that the subject resolutions had no
force and effect in view of the non-approval thereof during the Annual
Stockholders' Meeting held on March 1, 1982. To strengthen their position,
petitioners cite section 28 1/2 of the Corporation Law (Section 40 of the
Corporation Code).
The cited provision is not applicable to the case at bench as it refers to
the sale, lease, exchange or disposition of all or substantially all of the
corporation's assets, including its goodwill. In such a case, the action taken by
the board of directors requires the authorization of the stockholders on record.
It will be observed that, except for Arturo Lopez, the stockholders of
petitioner corporation also sit as members of the board of directors. Under the
circumstances in field, it will be illogical and superfluous to require the
stockholders' approval of the subject resolutions. Thus, even without the
stockholders' approval of the subject resolutions, petitioners are still liable to
pay private respondents' gratuity pay.
Petition is dismissed.
CORPORATION LAW
J. M. TUASON & CO., INC., represented by it Managing PARTNER,

GREGORIA ARANETA, INC. vs. QUIRINO BOLAÑOS
G.R. No. L-4935. May 28, 1954. Reyes, J.
Though a corporation has no power to enter into a partnership, it may

nevertheless enter into a joint venture with another where, the nature of that
venture is in line with the business-authorized by its charter.
Facts:
Plaintiff’s complaint against defendant was to recover possession of a

registered land. In the complaint, the plaintiff is represented by its Managing
Partner, Gregorio Araneta, Inc., another corporation. Defendant, in his
answer, sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession under claim of ownership,
adverse to the entire world by defendant and his predecessors in interest" from
"time immemorial". After trial, the lower court rendered judgment for
plaintiff, declaring defendant to be without any right to the land in question
and ordering him to restore possession thereof to plaintiff and to pay the latter
a monthly rent. Defendant appealed directly to the Supreme Court and
contended, among others, that Gregorio Araneta, Inc. cannot act as managing
partner for plaintiff on the theory that it is illegal for two corporations to enter
into a partnership
Issue:
Whether or not a corporation may enter into a joint venture with another
corporation.
Ruling:
It is true that the complaint states that the plaintiff is "represented herein
by its Managing Partner Gregorio Araneta, Inc.", another corporation, but
there is nothing against one corporation being represented by another person,
natural or juridical, in a suit in court. The contention that Gregorio Araneta,
Inc. cannot act as managing partner for plaintiff on the theory that it is illegal
for two corporations to enter into a partnership is without merit, for the true
rule is that "though a corporation has no power to enter into a partnership, it
may nevertheless enter into a joint venture with another where the nature of
that venture is in line with the business authorized by its charter." (Wyoming-
Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2. Fletcher Cyc. of
Corp., 1082.). There is nothing in the record to indicate that the venture in
which plaintiff is represented by Gregorio Araneta, Inc. as "its managing
partner" is not in line with the corporate business of either of them.
CORPORATION LAW

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CORPORATION LAW

PAGE CASE TITLE

PART I. CONCEPTS OF CORPORATION

1 Tayag vs. Benguet Consolidated, Inc.

PART II. NATURE AND ATTRIBUTES OF A CORPORATION

21 Smith Bell & Co., vs. Natividad

PART III. SEPARATE JURIDICAL PERSONALITY AND DOCTRINE OF

58 Lim vs. Court of Appeals

PART IV. PIERCING THE VEIL OF CORPORATION FICTION

89 Traders Royal Bank vs. Court of Appeals

PART V. CLASSIFICATION OF CORPORATIONS

108 National Coal Co. vs. Collector of Internal Revenue

PART VI. CORPORATE CONTRACT LAW

118 Bayla vs. Silang Traffic Co., Inc.

PART VII. ARTICLES OF INCORPORATION

128 Gov’t of the Philippin Islands vs. Manila Railroad Co.

PART VIII. DIRECTORS, TRUSTEES AND OFFICERS

140 Gamboa vs. Victoriano

179 Esguerra vs. Court of Appeals

PART IX. CORPORATE POWERS, AUTHORITY AND ACTIVITIES

189 Land Bank of the Philippines vs. COA

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased.

The situs of shares of stock would be the place of domicile of the

A dispute arose between CTC-NY and Tayag as to who between them

Whether or not the arguments of Benguet Consolidated, Inc. are correct.

No. Benguet Consolidated is a corporation who owes its existence to

remedy simply because CTC-NY, a foreign entity refuses to comply with a

ANG PUE & COMPANY, ET AL.

To organize a corporation that could claim a juridical personality of

Plaintiff Company filed a petition for declaratory relief contending their

Whether or not extension of the partnership established before the

The SC ruled that organizing a corporation is not a matter of right but

To organize a corporation or a partnership that could claim a juridical

To argue that because the original articles of partnership provided that

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC.,

Before a corporation may acquire juridical personality, the State must

In 1989, International Express Travel & Tour Services, Inc. (IETTI),

Kahn averred that he should not be impleaded because he merely acted

Whether or not the Court of Appeals is correct.

No. PFF, upon its creation, is not automatically considered a national

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

There is also no merit on the finding of the CA that IETTI is in estoppel.

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS,

In 1984, Judge Torres, in order to make substantial savings in taxes,

Due to the insufficient number of shares of stock issued to Judge Torres

Whether or not the deed of assignment executed can be revoked.

Moreover, we agree with the contention of the Solicitor General that

TAN BOON BEE & CO., INC.

Corporations are composed of natural persons and the legal fiction of

When the corporation is merely an adjunct, business conduit or alter

Whether or not the properties of PADCO could be levied due to the

YES. In the instant case, petitioner's evidence established that PADCO

Considering the aforestated principles and the circumstances established in

PHILIPPINE STOCK EXCHANGE, INC.

A corporation is but an association of individuals, allowed to transact

Whether or not the denial of PALI’s application is proper.

It is undeniable that the petitioner PSE is not an ordinary corporation,

A corporation is but an association of individuals, allowed to transact

BIBIANO O. REYNOSO, IV vs. HON. COURT OF APPEALS and

The corporation was evolved to make possible the aggregation and

The Commercial Credit Corporation (CCC) decided to organize

Under the new set-up, several officials of Commercial Credit

Meanwhile, Commercial Credit Corporation (CCC) changed its

Whether or not General Credit Corporation (GCC) a corporation