WILSON P.GAMBOA VS. FINANCE SEC.
MARGARITO outstanding capital stock (combined total of common and non-
B. TEVES
G.R NO. 176579
JUNE 28,2011
FACTS:
This is a petition to nullify the sale of shares of stock of
Philippine Telecommunications Investment Corporation (PTIC)
by the government of the Republic of the Philippines, acting
through the Inter-Agency Privatization Council (IPC), to Metro
Pacific Assets Holdings, Inc. (MPAH), an affiliate of First
Pacific Company Limited (First Pacific), a Hong Kong-based
investment management and holding company and a
shareholder of the Philippine Long Distance Telephone
Company (PLDT).
The petitioner questioned the sale on the ground that it
also involved an indirect sale of 12 million shares (or about 6.3
percent of the outstanding common shares) of PLDT owned by
PTIC to First Pacific. With the this sale, First Pacific’s common
shareholdings in PLDT increased from 30.7 percent to 37
percent, thereby increasing the total common shareholdings of
foreigners in PLDT to about 81.47%. This, according to the
petitioner, violates Section 11, Article XII of the 1987 Philippine
Constitution which limits foreign ownership of the capital of a
public utility to not more than 40%.
ISSUE:
Does the term “capital” in Section 11, Article XII of the
Constitution refer to the total common shares only, or to the total
voting preferred shares) of PLDT, a public utility?
RULING:
[The Court partly granted the petition and held that the
term “capital” in Section 11, Article XII of the Constitution
refers only to shares of stock entitled to vote in the election of
directors of a public utility, or in the instant case, to the total
common shares of PLDT.]
Section 11, Article XII (National Economy and
Patrimony) of the 1987 Constitution mandates the Filipinization
of public utilities, to wit:
Section 11. No franchise, certificate, or any other form
of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such
citizens; nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except under
the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities by
the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited
to their proportionate share in its capital, and all the executive
and managing officers of such corporation or association must
be citizens of the Philippines. (Emphasis supplied)
 The term “capital” in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock
comprising both common and non-voting preferred shares [of
PLDT].
The petition rule that the term “capital” in Section 11,
Article XII of the 1987 Constitution refers only to shares of
stock entitled to vote in the election of directors, and thus in the
present case only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred
shares). Respondent Chairperson of the Securities and Exchange
Commission is DIRECTED to apply this definition of the term
“capital” in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone
Company, and if there is a violation of Section 11, Article XII
of the Constitution, to impose the appropriate sanctions under
the law.
VALLE VERDE COUNTRY CLUB, INC. VS. VICTOR
AFRICA
G.R. NO. 151969
SEPT. 4,2009
FACTS:
1. February 27, 1996: Ernesto Villaluna, Jaime C.
Dinglasan (Dinglasan), Eduardo Makalintal
(Makalintal), Francisco Ortigas III, Victor Salta,
Amado M. Santiago, Jr., Fortunato Dee, Augusto
Sunico, and Ray Gamboa were elected as BOD
during the Annual Stockholders’ Meeting
of petitioner Valle Verde Country Club, Inc.
(VVCC)
2. 1997 - 2001: Requisite quorum could not be
obtained so they continued in a hold-over capacity
3. September 1, 1998: Dinglasan resigned, BOD still
constituting a quorom elected Eric Roxas (Roxas)
4. November 10, 1998: Makalintal resigned
5. On March 6, 2001: Jose Ramirez (Ramirez) was elected
by the remaining BOD
6. Respondent Africa (Africa), a member of VVCC,
questioned the election of Roxas and Ramirez as
members of the VVCC Board with the Securities and
Exchange Commission (SEC) and the Regional Trial
Court (RTC) as contrary to:
o Sec. 23. 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 holders of
stocks, or where there is no stock, from among
the members of the corporation, who shall hold
office for 1 year until their successors are
elected and qualified.
o Sec. 29. Vacancies in the office of director or
trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by
the stockholders or members or by expiration of
term, may be filled by the vote of at least a
majority of the remaining directors or trustees, if
still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a
regular or special meeting called for that
purpose. A director or trustee so elected to fill a
vacancy shall be elected only for the unexpired
term of his predecessor in office. xxx.
o Makalintal's term should have expired after
1996 there being
no unexpired term. The vacancy should have
been filled by the stockholders in a regular or
special meeting called for that purpose
7. RTC: Favored Africa - Ramirez as Makalintal's
replacement = null and void
8. SEC: Roxas as Vice hold-pver director of
Dinglasan = null and void
9. VVCC appealed in SC for certiorari being
partially contrary to law and jurisprudence
ISSUES:
1. W/N there is an unexpired term - NO
2. W/N the remaining directors of a corporation’s Board, still
constituting a quorum, can elect another director to fill in a
vacancy caused by the resignation of a hold-over director. - NO
HELD: Petition Denied. RTC Affirmed.
1. NO
Section 23 of the Corporation Code: term of BOD only 1 year -
fixed and has expired (1 yr after 1996)
2. NO
underlying policy of the Corporation Code is that the business
and affairs of a corporation must be governed by a board of
directors whose members have stood for election, and who
have actually been elected by the stockholders, on an annual
basis. Only in that way can the directors' continued
accountability to shareholders, and the legitimacy of their
decisions that bind the corporation's stockholders, be assured.
The shareholder vote is critical to the theory that legitimizes
the exercise of power by the directors or officers over
properties that they do not own.
Theory of delegated power of the board of directors.Section 29
contemplates a vacancy occurring within the director’s term of
office (unexpired) vacancy caused by Makalintal’s leaving lies
with the VVCC’s stockholders, not the remaining members of
its board of directors
FILIPINAS PORT SERVICES VS. GO
G.R. NO. 161886
MARCH 16,2007
FACTS:
Sept 4 1992: Eliodoro C. Cruz, Filport’s president from 1968-
1991, wrote a letter to the corporation’s BOD questioning the
creation and election of the following positions with a monthly
remuneration of P13,050.00 each. Cruz requested the board to
take necessary action/actions to recover from those elected to
the aforementioned positions the salaries they have received.
Jun 4 1993: Cruz, purportedly in representation of Filport and
its stockholders, among which is herein co-petitioner Mindanao
Terminal and Brokerage Services, Inc. (Minterbro), filed with
the SEC a derivative suit against Filport's BOD for acts of
mismanagement detrimental to the interest of the corporation
and its shareholders at large.
Cruz prayed that the BOD be made to pay Filport, jointly and
severally, the sums of money variedly representing the
damages incurred as a result of the creation of the
offices/positions complained of and the aggregate amount of
the questioned increased salaries.
RTC: BOD have the power to create positions not in the by-
laws and can increase salaries. But Edgar C. Trinidad under
the third and fourth causes of action to restore to the
corporation the total amount of salaries he received as assistant
vice president for corporate planning; and likewise ordering
Fortunato V. de Castro and Arsenio Lopez Chua under the
fourth cause of action to restore to the corporation the salaries
they each received as special assistants respectively to the
president and board chairman. In case of insolvency of any or
all of them, the members of the board who created their
positions are subsidiarily liable.
Appealed: creation of the positions merely for accommodation
purposes - GRANTED
ISSUES:
1. W/N there was mismanagement - NO
2. W/N there is a proper derivative suit - YES
HELD: CA Affirmed
1. NO.Section 35 of the Corporation Code, the creation of
an executive committee (as powerful as the BOD) must
be provided for in the bylaws of the
corporation.Notwithstanding the silence of Filport’s
bylaws on the matter, we cannot rule that the creation
of the executive committee by the board of directors is
illegal or unlawful. One reason is the absence of a
showing as to the true nature and functions of executive
committee .But even assuming there was
mismanagement resulting to corporate damages and/or
business losses, respondents may not be held liable in
the absence of a showing of bad faith in doing the acts
complained of. ("dishonest purpose","some moral
obliquity","conscious doing of a wrong", "partakes of
the nature of fraud") determination of the necessity for
additional offices and/or positions in a corporation is a
 management prerogative which courts are not wont to
review in the absence of any proof that such prerogative
was exercised in bad faith or with malice
2. YES.Besides, the requisites before a derivative suit can
be filed by a stockholder: - present
a) the party bringing suit should be a shareholder as of
the time of the act or transaction complained of, the
number of his shares not being material; - a stockholder
of Filport
b) he has tried to exhaust intra-corporate remedies, i.e.,
has made a demand on the board of directors for the
appropriate relief but the latter has failed or refused to
heed his plea; and
Matling Ind’l and Commercial Corp et al vs. Ricardo R.
Coros
GR No. 157802 October 13, 2010
FACTS:
Ricardo Coros was the Vice President for Finance and
Administration of Matling Industrial and Commercial
Corporation. He filed a case for illegal suspension and illegal
dismissal against Matling and some of its corporate officers.
The petitioner moved to dismiss the complaint raising the
ground that the Labor Arbiter has no jurisdiction over the case,
since the controversy is an intra-corporate dispute and should
be under the jurisdiction of the Securities and Exchange
Commission.
The NLRC set aside the dismissal. The petitioners elevated the
issue to the CA, but the CA dismissed the petition.
Issue:
Whether or not the respondent was a corporate officer of
Matling or not
Held
No. Ricardo Doros was not a corporate officer. The appeal
must fail.
For a position to be considered as a corporate office, or, for that
matter, for one to be considered as a corporate officer, the
position must, if not listed in the by-laws, have been created by
the corporation's board of directors, and the occupant thereof
appointed or elected by the same board of directors or
stockholders. This is the implication of the ruling in Tabang v.
National Labor Relations Commission, which reads:
"The president, vice president, secretary and treasurer are
commonly regarded as the principal or executive officers of a
corporation, and modern corporation statutes usually designate
them as the officers of the corporation. However, other offices
are sometimes created by the charter or by-laws of a
corporation, or the board of directors may be empowered under
the by-laws of a corporation to create additional offices as may
be necessary.
It has been held that an 'office' is created by the charter of the
corporation and the officer is elected by the directors or
stockholders. On the other hand, an 'employee' usually
occupies no office and generally is employed not by action of
the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid
to such employee."
This ruling was reiterated in the subsequent cases
of Ongkingco v. National Labor Relations Commission and De
Rossi v. National Labor Relations Commission.
The position of vice-president for administration and finance,
which Coros used to hold in the corporation, was not created
by the corporation’s board of directors but only by its president
or executive vice-president pursuant to the by-laws of the
corporation. Moreover, Coros’ appointment to said position
was not made through any act of the board of directors or
stockholders of the corporation. Consequently, the position to
which Coros was appointed and later on removed from, is not a
corporate office despite its nomenclature, but an ordinary
office in the corporation.
Coros’ alleged illegal dismissal therefrom is, therefore, within
the jurisdiction of the labor arbiter.
MARC II Marketng Inc. vs Alfredo M. Joson
GR No. 171993 December 12, 2011
Facts:
Petitioner Marc II Marketing is a domestic corporation engaged
in buying and distributing household appliances, among others.
It took over the operations of Mark Marketing, which was
made non-operational following its incorporation and
registration with the Securities and Exchange Commission
(SEC), Petitioner Lucila Joson is Marc II’s President and
majority stockholder. She was also the former President and
majority stockholder of the now defunct Mark Marketing.
Before Marc II was officially incorporated, Alfredo Joson had
already been engaged by Lucila in her capacity as President to
work as General Manager, Pending Marc II’s incorporation,
Alfredo was designated as General Manager of Mark
Marketing. Later on, Marc II was officially incorporated, and
Alfredo becomes it General Manager.
However, Marc II decided to cease its operations due to poor
sales collection aggravated by inefficient management of its
affairs. Alfredo was then informed of the termination of his
services since work is no longer necessary for the winding up
of Mark II’s affairs.
Alfredo then filed a complaint for illegal dismissal with the
Labor Arbiter. The Labor Arbiter ruled in favor of Alfredo.
Petitioner argued that Alfredo is a corporate officer and thus
should not be under the jurisdiction of the Labor Arbiter.
NLRC ruled in favor of the petitioner. The matter was brought
before the Court of Appeals which affirmed the Labors
Arbiters decision of illegal dismissal.
Issue:
Whether or not, Alfredo is a corporate officer or is merely an
employee of Marc II.
Held:
Alfredo Joson is an employee of Marc II Industrial and not a
corporate officer.
Under Section 25 of the Corporation Code or the Corporation
by-laws, the corporate officers are specifically enumerated, to
wit : (1) president; (2) secretary; (3) treasurer; and (4) such
other officers as may be provided for in the by-laws.
Conformably with Section 25, a position must be expressly
mentioned in the by-laws in order to be considered as a
corporate officer. Thus, the creation of an office pursuant to or
under a by-law provision enabling provision is not enough to
make a position a corporate office.
An “office” is created by the charter of the corporation. An
office is elected by directors or stockholders. On the other
hand, an employee occupies no office and generally is
employed not by the directors or stockholders but by the
managing officer of the corporation who also determines the
compensation to be paid to such employee.
The position of a general manager is not among those
enumerated. The enabling clause in petitioner corporation's by-
laws empowering its Board of Directors to create additional
officers, i.e., General Manager, and the alleged subsequent
passage of a board resolution to that effect cannot make such
position a corporate office. Matling clearly enunciated that the
board of directors has no power to create other corporate
offices without first amending the corporate by-laws so as to
include therein the newly created corporate office. Though the
board of directors may create appointive positions other than
the positions of corporate officers, the persons occupying such
positions cannot be viewed as corporate officers under Section
25 of the Corporation Code. In view thereof, this Court holds
that unless and until petitioner corporation's by-laws is
amended for the inclusion of General Manager in the list of its
corporate officers, such position cannot be considered as a
corporate office within the realm of Section 25 of the
Corporation Code.
Leslie Okol vs Slimmers World International
GR No. 160146 December 11, 2009
Facts:
Respondent Slimmers World International operating under the
name of Behavior Modifications, Inc. employed Leslie Okol as
a management trainee and rose from the ranks from being Head
Officer Manager to become Vice President in 1996 until her
dismissal in 1999.
Prior to her dismissal, Slimmers World preventively suspended
Okol. The suspension arose from the seizure of Bureau of
Customs of several slimming machine which was placed under
the name of Okol and two customs brokers for a lesser value.
For being undervalued the equipment are seized.
Okol filed her written explanation, however, Slimmers World
found her explanation to be unsatisfactory. Through a letter
dated September 1999 signed by its president, Okol’s
employment was terminated.
Okol filed a complaint with the Arbitration branch of the
NLRC against Slimmers World for illegal dismissal among
others. Respondent filed a Motion to Dismiss, on the ground
that NLRC had no jurisdiction over the subject matter of the
complaint, the Labor Arbiter granted the motion, he ruled that
Okol was the Vice President at the time of her dismissal ,
falling outside his jurisdiction, since it involved a corporate
officer and is an intra-corporate controversy.
Issue
Whether or not Okol is a corporate officer
Held
Okol is a corporate officer at the time of her dismissal.
Slimmers World provided the company’s General Information
Sheet and Directors Affidavit attesting that petitioner was an
officer. The GIS and minutes of the meeting of the board of
directors indicate that petitioner was a member of the Board of
Directors , holding one subscribed share of the capital stock,
and an elected corporate officer. From the documents
submitted by the respondent, it is clear that Okol was director
and officer of Slimmers World and the illegal dismissal, unpaid
commissions , reinstatement and backwages imputed by the
petitioner fall squarely within the ambit of intra-corporate
disputes.
The question of renumeration involving a stockholder and
officer , not a mere employee, is not a simple labor problem but
a matter that comes within the area of corporate affairs and
management and is a corporate controversy in contemplation of
the Corporation Code.
25. Gloria Gomez v PNOC
Facts:
1. Petitioner Gloria V. Gomez used to work as Manager of
the Legal Department of Petron Corporation, then a
government-owned corporation. With Petron’s
privatization, she availed of the company’s early
retirement program and left that organization on April
30, 1994. On the following day, May 1, 1994, however,
Filoil Refinery Corporation(Filoil), also a government-
owned corporation, appointed her its corporate
secretary and legal counsel, with the same managerial
rank, compensation, and benefits that she used to enjoy
at Petron.
2. But Filoil was later on also identified for privatization.
To facilitate its conversion, the Filoil board of directors
created a five-member task force headed by petitioner
Gomez who had been designated administrator. While
documenting Filoil’s assets, she found several
properties which were not in the books of the
corporation. Consequently, she advised the board to
suspend the privatization until all assets have been
accounted for.
3. With the privatization temporarily shelved, Filoil
underwent reorganization and was renamed Filoil
Development Management Corporation (FDMC),
which later became the respondent PNOC Development
Management Corporation (PDMC). When this
happened, Gomez’s task force was abolished and its
members, including Gomez, were given termination
notices on March 5, 1996. Meantime, petitioner Gomez
continued to serve as corporate secretary of respondent
PDMC.
4. On March 29, 1999 the new board of directors of
respondent PDMC removed petitioner Gomez as
corporate secretary. Further, at the board’s meeting on
October 21, 1999 the board questioned her continued
employment as administrator. In answer, she presented
the former president’s May 24, 1998 letter that
extended her term. Dissatisfied with this, the board
sought the advice of its legal department, which
expressed the view that Gomez’s term extension was an
ultra vires act of the former president. It reasoned that,
since her position was functionally that of a vice-
president or general manager, her term could be
extended under the company’s by-laws only with the
approval of the board. The legal department held that
her "de facto" tenure could be legally put to an end
5. Petitioner Gomez for her part conceded that as
corporate secretary, she served only as a corporate
officer. But, when they named her administrator, she
became a regular managerial employee. Consequently,
the respondent PDMC’s board did not have to approve
either her appointment as such or the extension of her
term in 1998.
 6. Respondent PDMC moved to have petitioner Gomez’s
complaint dismissed on ground of lack of jurisdiction.
The Labor Arbiter granted the motion. upon a finding
that Gomez was a corporate officer and that her case
involved an intra-corporate dispute that fell under the
jurisdiction of the Securities and Exchange Commission
(SEC) pursuant to Presidential Decree (P.D.) 902-A
7. Gomez was a regular employee, not a corporate officer;
hence, her complaint came under the jurisdiction of the
Labor Arbiter.
8. CA reversed- complaint is within the jurisdiction of the
Regional Trial Court
Issue:
Whether not petitioner Gomez was, in her capacity as
administrator of respondent PDMC, an ordinary employee
whose complaint for illegal dismissal and non-payment of
wages and benefits is within the jurisdiction of the NLRC.
Held:
Ordinary company employees are generally employed not by
action of the directors and stockholders but by that of the
managing officer of the corporation who also determines the
compensation to be paid such employees. Corporate officers,
on the other hand, are elected or appointed by the directors or
stockholders, and are those who are given that character either
by the Corporation Code or by the corporation’s by-laws.
Here, it was the PDMC president who appointed petitioner
Gomez administrator, not its board of directors or the
stockholders. The president alone also determined her
compensation package. Moreover, the administrator was not
among the corporate officers mentioned in the PDMC by-laws.
The corporate officers proper were the chairman, president,
executive vice-president, vice-president, general manager,
treasurer, and secretary.
Respondent PDMC of course claims that as administrator
petitioner Gomez performed functions that were similar to
those of its vice-president or its general manager, corporate
positions that were mentioned in the company’s by-laws. It
points out that Gomez was third in the line of command, next
only to the chairman and president, and had been empowered
to make major decisions and manage the affairs of the
company.
But the relationship of a person to a corporation, whether
as officer or agent or employee, is not determined by the
nature of the services he performs but by the incidents of
his relationship with the corporation as they actually exist.
Here, respondent PDMC hired petitioner Gomez as an ordinary
employee without board approval as was proper for a corporate
officer. When the company got her the first time, it agreed to
have her retain the managerial rank that she held with Petron.
Her appointment paper said that she would be entitled to all the
rights, privileges, and benefits that regular PDMC employees
enjoyed. This is in sharp contrast to what the former PDMC
president’s appointment paper stated: he was elected to the
position and his compensation depended on the will of the
board of directors.
What is more, respondent PDMC enrolled petitioner Gomez
with the Social Security System, the Medicare, and the Pag-
Ibig Fund. It even issued certifications dated October 10, 2008,
stating that Gomez was a permanent employee and that the
company had remitted combined contributions during her
tenure. The company also made her a member of the PDMC’s
savings and provident plan and its retirement plan.
That petitioner Gomez served concurrently as corporate
secretary for a time is immaterial. A corporation is not
prohibited from hiring a corporate officer to perform services
under circumstances which will make him an employee.
Indeed, it is possible for one to have a dual role of officer and
employee. In Elleccion Vda. De Lecciones v. National Labor
Relations Commission, the Court upheld NLRC jurisdiction
over a complaint filed by one who served both as corporate
secretary and administrator, finding that the money claims
were made as an employee and not as a corporate officer.
Liability of Corporate Officer
26. Rodolfo Labore v Pagsanjan Tourism Consumer Corp.
Facts:
1. Petitioner Philippine Tourism Authority (PTA) is a
government-owned and controlled corporation that
administers tourism zones.
2. Respondent Pagsanjan Tourism Consumers’
Cooperative (PTCC) is a cooperative organized since
1988 under Republic Act No. 6938, or the "Cooperative
Code of the Philippines." The other individual
respondents are PTCC employees, consisting of
restaurant staff and boatmen at the PTA Complex.
3. In 1989, in order to help the PTCC as a cooperative, the
PTA allowed it to operate a restaurant business located
at the main building of the PTA Complex and the boat
ride services to ferry guests and tourists to and from the
Pagsanjan Falls, paying a certain percentage of its
earnings to the PTA
4. In 1993, the PTA implemented a reorganization and
reshuffling in its top level management. Herein
petitioner Rodolfo Laborte (Laborte) was designated as
Area Manager, CALABARZON area with direct
supervision over the PTA Complex and other entities at
the Southern Luzon.
 5. On October 22, 1993, Laborte served a written notice
upon the respondents to cease the operations of the
latter’s restaurant business and boat ride services in
view of the rehabilitation, facelifting and upgrading
project of the PTA Complex. Consequently, on
November 9, 1993, the PTCC filed with the RTC,
Branch 28, Santa Cruz, Laguna a Complaint for
Prohibition, Injunction and Damages with Temporary
Restraining Order (TRO) and Preliminary Injunction
against Laborte,
6. In an Order dated November 11, 1993, the trial court
issued the TRO prayed for
Held
With respect to Laborte's liability in his official and personal
capacity, the Court finds that Laborte was simply
implementing the lawful order of the PTA Management. As a
general rule the officer cannot be held personally liable with
the corporation, whether civilly or otherwise, for the
consequences of his acts, if acted for and in behalf of the
corporation, within the scope of his authority and in good faith.
Furthermore, the Court also notes that the charges against
petitioners Laborte and the PTA for grave coercion and for the
violation of R.A. 6713 have all been dismissed. Thus, the Court
finds no basis to hold petitioner Laborte liable.

Petition is granted.
7. Opposing the issuance of the TRO, Laborte averred that
the PTCC does not own the restaurant facility as it was
only tolerated to operate the same by the PTA as a
matter of lending support and assistance to the
cooperative in its formative years.

8. RTC favored the PTCC, held jointly and severally

liable to repsondent

9. CA affirmed RTC

Issue: W/N Laborte can be held liable

27. MAM Realty v NLRC v NLRC
Facts:
1. The case originated from a complaint filed with the
Labor Arbiter by private respondent Celso B. Balbastro
against herein petitioners, MAM Realty Development
Corporation ("MAM") and its Vice President Manuel P.
Centeno, for wage differentials, "ECOLA," overtime
pay, incentive leave pay, 13th month pay (for the years
1988 and 1989), holiday pay and rest day pay.
Balbastro alleged that he was employed by MAM as a
pump operator in 1982 and had since performed such
work at its Rancho Estate, Marikina, Metro Manila. He
earned a basic monthly salary of P1,590.00 for seven
days of work a week that started from 6:00 a.m. to up
until 6:00 p.m. Daily.
2. MAM countered that Balbastro had previously been
employed by Francisco Cacho and Co., Inc., the
developer of Rancho Estates. Sometime in May 1982,
his services were contracted by MAM for the operation
of the Rancho Estates' water pump. He was engaged,
however, not as an employee, but as a service
contractor, at an agreed fee of P1,590.00 a month.
3. Similar arrangements were likewise entered into by
MAM with one Rodolfo Mercado and with a security
guard of Rancho Estates III Homeowners' Association.
Under the agreement, Balbastro was merely made to
open and close on a daily basis the water supply system
4. On 23 May 1990, prior to the filing of the complaint,
MAM executed a Deed of Transfer,1 effective 01 July
1990, in favor of the Rancho Estates Phase III
Homeowners Association, Inc., conveying to the latter
all its rights and interests over the water system in the
subdivision.
5. Respondent respondents are hereby directed to pay
jointly and severally complainant the sum of
P86,641.05 as above-computed.
Issue: Whether or not director or officer of a corporation
solidarily obligated with the latter for a corporate liability.
Held:
the NLRC erred in holding Centeno jointly and severally liable
with MAM. A corporation, being a juridical entity, may act
only through its directors, officers and employees. Obligations
incurred by them, acting as such corporate agents, are not theirs
but the direct accountabilities of the corporation they represent.
True, solidary liabilities may at times be incurred but only
when exceptional circumstances warrant such as, generally, 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.
4 When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate action.
In the case at Bench, there is nothing substantial on record that
can justify, prescinding from the foregoing, petitioner
Centeno's solidary liability with the corporation.
Modified and remanded the case to NLRC for a re-computation
of private respondent's monetary awards, which, conformably
with this opinion, shall be paid solely by petitioner MAM
Realty Development Corporation. No special pronouncement
on costs.
Commercial Cases # 28-30
Harpoon Marine Services, Inc. and Jose Lido T. Rosit vs.
Fernan H. Francisco
G.R. No. 167751, March 02 : 2011
Del Castillo, J.:
Doctrine
The general rule is grounded on the theory that a corporation
has a legal personality separate and distinct from the persons
comprising it. To warrant the piercing of the veil of corporate
fiction, the officer's bad faith or wrongdoing "must be
established clearly and convincingly" as "bad faith is never
presumed."
Facts
Petitioner Harpoon, a company engaged in ship building and
ship repair, with petitioner Rosit as its President and Chief
Executive Officer (CEO), originally hired respondent Yard
Supervisor tasked to oversee and supervise all projects of the
company. In 1998, respondent left for employment elsewhere
but was rehired by petitioner Harpoon and assumed his
previous position a year after.
On June 15, 2001, respondent averred that he was
unceremoniously dismissed by petitioner Rosit. He was
informed that the company could no longer afford his salary
and that he would be paid his separation pay and accrued
commissions.
Petitioners presented a different version of the events and
refuted the allegations of respondent. They explained that
respondent was dismissed because of absenteeism, AWOL and
abandoning his job which the latter denied.
Petitioners filed a petition for certiorari with the CA, which on
January 26, 2005, affirmed the findings and conclusions of the
NLRC. The CA declared petitioners solidarily liable for
respondent's backwages, separation pay and accrued
commissions.
Petitioners moved for reconsideration which was denied by the
CA. Hence, this petition.
Issue
Whether petitioner Rosit can be held solidarily liable with
petitioner Harpoon.
Ruling
The petition is partly meritorious. Rosit could not be held
solidarily liable with Harpoon for lack of substantial evidence of
bad faith and malice on his part in terminating respondent.
As held in the case of MAM Realty Development Corporation v.
National Labor Relations Commission, "obligations incurred by
[corporate officers], acting as such corporate agents, are not
theirs but the direct accountabilities of the corporation they
represent." As such, they should not be generally held jointly
and solidarily liable with the corporation. The Court, however,
cited circumstances when solidary liabilities may be imposed, as
exceptions:
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 the director or officer has consented to
the issuance of watered stock 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.
4. When a director, trustee or officer is made, by
specific provision of law, personally liable for
his corporate action.
In the case at bench, the CA's basis for petitioner Rosit's
liability was that he acted in bad faith when he approached
respondent and told him that the company could no longer
afford his salary and that he will be paid instead his separation
pay and accrued commissions. This finding, however, could
not substantially justify the holding of any personal liability
against petitioner Rosit. The records are bereft of any other
satisfactory evidence that petitioner Rosit acted in bad faith
with gross or inexcusable negligence, or that he acted outside
the scope of his authority as company president. Indeed,
petitioner Rosit informed respondent that the company wishes
to terminate his services since it could no longer afford his
salary. Moreover, the promise of separation pay, according to
petitioners, was out of goodwill and magnanimity. At the most,
petitioner Rosit's actuations only show the illegality of the
manner of effecting respondent's termination from service due
to absence of just or valid cause and non-observance of
procedural due process but do not point to any malice or bad
faith on his part. Besides, good faith is still presumed. In
addition, liability only attaches if the officer has assented
to patently unlawful acts of the corporation.
Thus, it was error for the CA to hold petitioner Rosit solidarily
liable with petitioner Harpoon for illegally dismissing
respondent.
The Court absolved Petitioner Jose Lido T. Rosit from the
liability adjudged against co-petitioner Harpoon Marine
Services, Incorporated.
SPI Technologies, Inc. and Lea Villanueva vs Victoria K.
Mapua
G.R. No. 191154, April 7, 2014
Reyes, J.:
Doctrine
The Court cannot apply the exceptions provided by law when a
corporate officer becomes personally liable for the obligation
Facts
Victoria K. Mapua (Mapua) was hired by SPI Technologies, Inc.
(SPI) as the Corporate Development’s Research/Business
Intelligence Unit Head and Manager of the company. The
Company through its Vice President and Corporate
Development Head, Peter Maquera (Maquera) hired Elizabeth
Nolan (Nolan) as Mapua’s supervisor.
Sometime in October 2006, the hard disk on Mapua’s laptop
crashed, causing her to lose files and data. Mapua informed
Nolan and her colleagues that she was working on recovering
the lost data and asked for their patience for any possible delay
on her part in meeting deadlines. Nolan informed Mapua that
she was realigning Mapua’s position to become a subordinate of
co-manager Sameer Raina (Raina) due to her missing a work
deadline. Nolan also disclosed that Mapua’s colleagues were
"demotivated" [sic] because she was "taking things easy while
they were working very hard," and that she was "frequently
absent, under timing, and coming in late every time [Maquera]
goes on leave or on vacation." In December 2006, Mapua
noticed that her colleagues began to ostracize and avoid her.
Nolan and Raina started giving out majority of her research work
and other duties under Healthcare and Legal Division to the
rank-and-file staff. Mapua lost about 95% of her work projects
and job responsibilities. Mapua requested for a transfer to
another department within SPI which did not happen.
Eventually, Mapua’s level was downgraded because a new
manager will be hired and positioned between her rank and
Raina’s. On March 21, 2007, she was terminated due to
redundant position.
The Labor Arbiter ruled in favor of the Company which was
reversed by NILRC. The Court of Appeals reversed the NLRC’s
ruling and reinstated the ruling of the Labor Arbiter.
Issue
Whether the Officers of the SPI Technology are solidarily and
personally liable.
(b) they consent to the issuance of watered down stocks or when,
having knowledge of such issuance, do not forthwith file with
the corporate secretary their written objection;
(c) they agree to hold themselves personally and solidarily liable
with the corporation; or
(d) they are made by specific provision of law personally
answerable for their corporate action."
While the Court finds Mapua’s averments against Villanueva,
Nolan, Maquera and Raina as detailed and exhaustive, the Court
takes notice that these are mostly suppositions on her part. Thus,
the Court cannot apply the above-enumerated exceptions when
a corporate officer becomes personally liable for the obligation

Ruling

The Court ruled in a negative on the issue of the solidary

obligation of the corporate officers impleaded vis-à-vis the
corporation for Mapua’s illegal dismissal, "It is hornbook
principle that personal liability of corporate directors, trustees or
officers attaches only when:

(a) they assent to a patently unlawful act of the corporation, or

when they are guilty of bad faith or gross negligence in directing
its affairs, or when there is a conflict of interest resulting in
damages to the corporation, its stockholders or other persons;
Mirant (Phils.) Corporation and Edgardo A. Bautista vs.
Joselito A. Caro
G.R. No. 181490, April 23, 2014
Villarama, Jr., J.:
Doctrine
A corporation has a personality separate and distinct from its
officers and board of directors who may only be held personally
liable for damages if it is proven that they acted with malice or
bad faith in the dismissal of an employee.
Facts
Petitioner corporation is a holding company that owns shares in
project companies such as Mirant Sual Corporation and Mirant
Pagbilao Corporation (Mirant Pagbilao) which operate and
maintain power stations located in Sual, Pangasinan and
Pagbilao, Quezon, respectively. Petitioner corporation and its
related companies maintain around 2,000 employees detailed in
its main office and other sites.
Petitioner Edgardo A. Bautista (Bautista) was the President of
petitioner corporation when respondent was terminated from
employment. Respondent was employed by Mirant Pagbilao as
Procurement Supervisor.
Respondent filed a complaint10 for illegal dismissal and money
claims for 13th and 14th month pay, bonuses and other benefits,
as well as the payment of moral and exemplary damages and
attorney’s fees. Respondent posits the following allegations in
his Position Paper:11
The respondent was dismissed because of his unjustified reason
for not submitting to random drug testing. He averred that at
around 11:30 a.m. of the same day, he received a phone call from
his wife’s colleague who informed him that a bombing incident
occurred near his wife’s work station in Tel Aviv, Israel where
his wife was then working as a caregiver.
Respondent claims that after the said phone call, he proceeded
to the Israeli Embassy to confirm the news on the alleged
bombing incident. Respondent further claims that before he left
the office on the day of the random drug test, he first informed
the secretary of his Department, Irene Torres (Torres), at around
12:30 p.m. that he will give preferential attention to the
emergency phone call that he just received. He also told Torres
that he would be back at the office as soon as he has resolved his
predicament. Respondent recounts that he tried to contact his
wife by phone but he could not reach her. He then had to go to
the Israeli Embassy to confirm the bombing incident. However,
he was told by Eveth Salvador (Salvador), a lobby attendant at
the Israeli Embassy, that he could not be allowed entry due to
security reasons.
On that same day, at around 6:15 p.m., respondent returned to
petitioner corporation’s office. When he was finally able to
charge his cellphone at the office, he received a text message
from Tina Cecilia (Cecilia), a member of the Drug Watch
Committee that conducted the drug test, informing him to
participate in the said drug test. He immediately called up
Cecilia to explain the reasons for his failure to submit himself to
the random drug test that day. He also proposed that he would
submit to a drug test the following day at his own expense.
Respondent never heard from Cecilia again.
The Investigating Committee found him guilty of "unjustified
refusal to submit to random drug testing" and recommended a
penalty of four working weeks suspension without pay, instead
of termination, due to the presence of mitigating circumstances.
On January 19, 2005, petitioner corporation’s Asst. Vice
President for Material Management Department, George K.
Lamela, Jr. (Lamela), recommended that respondent be
terminated from employment instead of merely being
suspended. Lamela argued that even if respondent did not
outrightly refuse to take the random drug test, he avoided the
same. Lamela averred that "avoidance" was synonymous with
"refusal."
Issue:
A corporation has a personality separate and distinct from its
officers and board of directors who may only be held personally
liable for damages if it is proven that they acted with malice or
bad faith in the dismissal of an employee. Absent any evidence
on record that petitioner Bautista acted maliciously or in bad
faith in effecting the termination of respondent, plus the apparent
lack of allegation in the pleadings of respondent that petitioner
Bautista acted in such manner, the doctrine of corporate fiction
dictates that only petitioner corporation should be held liable for
the illegal dismissal of respondent.
Thus, petitioner Edgardo A. Bautista is not held personally liable
as then President of petitioner corporation at the time of the
illegal dismissal.

Whether the Court of Appeals grievously erred when it held

petitioner Bautista personally liable for [respondent] Caro’s
unfounded claims considering that, aside from respondent
Caro’s dismissal being lawful, petitioner Bautista merely acted
within the scope of his functions in good faith.

Ruling

No. The petition avers that petitioner Bautista should not be held
personally liable for respondent’s dismissal as he acted in good
faith and within the scope of his official functions as then
president of petitioner corporation. In agreeing with petitioners,
the Court cited that both decisions of the Labor Arbiter and the
CA did not discuss the basis of the personal liability of petitioner
Bautista, and yet the dispositive portion of the decision of the
Labor Arbiter - which was affirmed by the appellate court - held
him jointly and severally liable with petitioner corporation.
PUNO (as heir of the late Carlos Puno) vs. PUNO
ENTERPRISES, INC.
GR 177066, September 11, 2009
FACTS
Carlos L. Puno, who died on June 25, 1963, was an
incorporator of respondent Puno Enterprises, Inc. On March
14, 2003, petitioner Joselito Musni Puno, claiming to be an heir
of Carlos L. Puno, initiated a complaint for specific
performance against respondent. Petitioner averred that he is
the son of the deceased with the latter’s common-law wife,
Amelia Puno. As surviving heir, he claimed entitlement to the
rights and privileges of his late father as stockholder of
respondent. The complaint thus prayed that respondent allow
petitioner to inspect its corporate book, render an accounting of
all the transactions it entered into from 1962, and give
petitioner all the profits, earnings, dividends, or income
pertaining to the shares of Carlos L. Puno.
The RTC allowed the plaintiff to inspect the corporate books
and records of the company from 1962 up to the present
including the financial statements of the corporation.
On appeal, the CA ordered the dismissal of the complaint.
ISSUE
Whether or not upon the death of a stockholder, the heirs
automatically become stockholders of the corporation thus
entitled to the rights and privileges of a stockholder.
RULING
The petition is without merit. Petitioner failed to establish the
right to inspect respondent corporation’s books and receive
dividends on the stocks owned by Carlos L. Puno.
Sections 74 and 75 of the Corporation Code enumerate the
persons who are entitled to the inspection of corporate books,
thus—
“Sec. 74. Books to be kept; stock transfer agent.—x x x.
The records of all business transactions of the corporation and
the minutes of any meeting shall be open to the inspection of
any director, trustee, stockholder or member of the corporation
at reasonable hours on business days and he may demand, in
writing, for a copy of excerpts from said records or minutes, at
his expense.
xxxx
Sec. 75. Right to financial statements.—Within ten (10) days
from receipt of a written request of any stockholder or member,
the corporation shall furnish to him its most recent financial
statement, which shall include a balance sheet as of the end of
the last taxable year and a profit or loss of statement for said
taxable year, showing in reasonable detail its assets and
liabilities and the result of its operations.”
The stockholder’s right of inspection of the corporation’s
books and records is based upon his ownership of shares in the
corporation and the necessity for self-protection. After all, a
shareholder has the right to be intelligently informed about were transferred to him. This would only be possible if
corporate affairs. Such right rests upon the stockholder’s petitioner has been recognized as an heir and has participated
underlying ownership of the corporation’s assets and property. in the settlement of the estate of the deceased.

Similarly, only stockholders of record are entitled to receive

dividends declared by the corporation, a right inherent in the
ownership of the shares. Lao vs. Lao, G.R. No. 170585 October 6, 2008

Upon the death of a shareholder, the heirs do not automatically REYES, R.T., J.:
become stockholders of the corporation and acquire the rights
and privileges of the deceased as shareholder of the
corporation. The stocks must be distributed first to the heirs in FACTS
estate proceedings, and the transfer of the stocks must be
Petitioners claimed that they are stockholders of PFSC based
recorded in the books of the corporation. Section 63 of the
on the General Information Sheet filed with the SEC, in which
Corporation Code provides that no transfer shall be valid,
they are named as stockholders and directors of the
except as between the parties, until the transfer is recorded in
corporation. Petitioner David Lao alleged that he acquired 446
the books of the corporation. During such interim period, the
shares in PFSC from his father, Lao Pong Bao, which shares
heirs stand as the equitable owners of the stocks, the executor
were previously purchased from a certain Hipolito Lao.
or administrator duly appointed by the court being vested with
Petitioner Jose Lao, on the other hand, alleged that he acquired
the legal title to the stock.17 Until a settlement and division of
333 shares from respondent Dionisio Lao himself.
the estate is effected, the stocks of the decedent are held by the
administrator or executor.18 Consequently, during such time, it
is the administrator or executor who is entitled to exercise the
rights of the deceased as stockholder. Respondent denied petitioners’ claim. He alleged that the
inclusion of their names in the corporation’s General
Thus, even if petitioner presents sufficient evidence in this case Information Sheet was inadvertently made. He also claimed
to establish that he is the son of Carlos L. Puno, he would still that petitioners did not acquire any shares in PFSC by any of
not be allowed to inspect respondent’s books and be entitled to the modes recognized by law, namely subscription, purchase,
receive dividends from respondent, absent any showing in its or transfer. Since they were neither stockholders nor directors
transfer book that some of the shares owned by Carlos L. Puno
of PFSC, petitioners had no right to be issued certificates or
stocks or to inspect its corporate books.
The General Information Sheet of PFSC for the years 1987-
1998 state that petitioners-appellants David C. Lao and Jose C.
Lao own 446 and 333 shares, respectively, in PFSC. It is also
indicated therein that David C. Lao occupied various key
positions in PFSC from 1987-1998 and Jose C. Lao served as
Director in PFSC from 1990-1998. The Sworn Statements of
Uy Lam Tiong, former corporate secretary of the PFSC, also
state that petitioners-appellants David C. Lao and Jose C. Lao,
per corporate records of PFSC, own shares of stock numbering
446 and 333, respectively. The minutes of the Annual
Stockholders Meeting of PFSC on January 28, 1988 at 3:00
o’clock p.m. shows that among those present were petitioners-
appellants David C. Lao and Jose C. Lao. During the said
meeting, petitioner-appellant David C. Lao was nominated and
elected Director of PFSC. Withal, the Minutes of the Meeting
of the Board of Directors of PFSC at its Office at Hipodromo,
Cebu City, on January 28, 1988 at 4:00 p.m. disclose that
petitioner-appellant David C. Lao was elected vice-president of
PFSC. Both minutes were signed by the officers of PFSC
including respondent-appellee
RTC denied the petition of David C. Lao and Jose C. Lao to be
recognized as stockholders and directors of PFSC, to be issued
certificates of stock of said corporation and to be allowed to
exercise rights of stockholders of the same corporation. CA
concurred with the RTC in toto.
ISSUE
Whether or not the mere inclusion as shareholder in the
General Information Sheet of a corporation sufficient proof that
one is a shareholder in such corporation
RULING
Petitioners failed to prove that they are shareholders of PSFC.
Records disclose that petitioners have no certificates of shares
in their name. A certificate of stock is the evidence of a
holder’s interest and status in a corporation. It is a written
instrument signed by the proper officer of a corporation stating
or acknowledging that the person named in the document is the
owner of a designated number of shares of its stock.24 It is
prima facie evidence that the holder is a shareholder of a
corporation.
Nor is there any written document that there was a sale of
shares, as claimed by petitioners. Petitioners did not present
any deed of assignment, or any similar instrument, between
Lao Pong Bao and Hipolito Lao; or between Lao Pong Bao and
petitioner David Lao. There is likewise no deed of assignment
between petitioner Jose Lao and private respondent Dionisio
Lao.
Absent a written document, petitioners must prove, at the very
least, possession of the certificates of shares in the name of the
alleged seller. Again, they failed to prove possession. They
failed to prove the due delivery of the certificates of shares of
the sellers to them. Section 63 of the Corporation Code
provides:
“Sec. 63. Certificate of stock and transfer of shares.—The
capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are personal
property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or
other person legally authorized to make the transfer. No
transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares
transferred.”
In contrast, respondent was able to prove that he is the owner
of the disputed shares. He had in his possession the certificates
of stocks of Hipolito Lao. The certificates of stocks were also
properly endorsed to him. More importantly, the transfer was
duly registered in the stock and transfer book of the
corporation. Thus, as between the parties, respondent has
proven his right over the disputed shares.
The mere inclusion as shareholder of petitioners in the General
Information Sheet of PFSC is insufficient proof that they are
shareholders of the company.
Petitioners bank heavily on the General Information Sheet
submitted by PFSC to the SEC in which they were named as
shareholders of PFSC. They claim that respondent is now
estopped from contesting the General Information Sheet.
While it may be true that petitioners were named as
shareholders in the General Information Sheet submitted to the
SEC, that document alone does not conclusively prove that
they are shareholders of PFSC. The information in the
document will still have to be correlated with the corporate
books of PFSC. As between the General Information Sheet and
the corporate books, it is the latter that is controlling.
If a transferee of shares of stock who failed to register such
transfer in the Stock and Transfer Book of the Corporation
could not exercise the rights granted unto him by law as
stockholder, with more reason that such rights be denied to a
person who is not a stockholder of a corporation. Petitioners-
appellants never secured such a standing as stockholders of
PFSC and consequently, their petition should be denied.”
It should be stressed that the burden of proof is on petitioners
to show that they are shareholders of PFSC. This is so because
they do not have any certificates of shares in their name.
Moreover, they do not appear in the corporate books as
registered shareholders. If they had certificates of shares, the
burden would have been with PFSC to prove that they are not
shareholders of the corporation.
As discussed, petitioners failed to hurdle their burden. There is
no written document evidencing their claimed purchase of
shares. We note that petitioners agreed to submit their case for
decision based merely on the documents on record. Hence, no
testimonial evidence was presented to prove the alleged
purchase of shares. Absent any documentary or testimonial
evidence, the bare assertion of petitioners that they are
shareholders cannot prevail.
Loyola Grand Villas Homeowners (South) Association, Inc.
vs. CA, Home Insurance and Guaranty Corporation,
Emden Encarnacion And Horatio Aycardo
G.R. No. 117188. August 7, 1997
ROMERO, J.:
FACTS
LGVHAI was organized as the association of homeowners and
residents of the Loyola Grand Villas. It was registered with the
Home Financing Corporation, the predecessor of herein
respondent HIGC, as the sole homeowners’ organization in the
said subdivision. For unknown reasons, however, LGVHAI did
not file its corporate by-laws. They discovered that there were
two other organizations within the subdivision—the North
Association and the South Association. According to private
respondents, a non-resident and Soliven himself, respectively
headed these associations. When Soliven inquired about the
status of LGVHAI, HIGC, informed him that LGVHAI had
been automatically dissolved for two reasons. First, it did not
submit its by-laws within the period required by the
Corporation Code and, second, there was non-user of corporate
charter because HIGC had not received any report on the
association's activities. Apparently, this information resulted in
the registration of the South Association with the HIGC.
These developments prompted the officers of the LGVHAI to
lodge a complaint with the HIGC. They questioned the
revocation of LGVHAI’s certificate of registration without due
notice and hearing and concomitantly prayed for the
cancellation of the certificates of registration of the North and
South Associations by reason of the earlier issuance of a
certificate of registration in favor of LGVHAI.
ISSUE
Whether or not failure of a corporation to file its by-laws
within one month from the date of its incorporation, as
mandated by Section 46 of the Corporation Code, result in its
automatic dissolution
RULING
NO. Failure to file by-laws within the prescribed time will not
result in the automatic dissolution of a corporation.
As Fletcher aptly puts it: “It has been said that the by-laws of a
corporation are the rule of its life, and that until by-laws have
been adopted the corporation may not be able to act for the
purposes of its creation, and that the first and most important
duty of the members is to adopt them. This would seem to
follow as a matter of principle from the office and functions of
by-laws. Viewed in this light, the adoption of by-laws is a
matter of practical, if not one of legal, necessity. Moreover, the
peculiar circumstances attending the formation of a corporation
may impose the obligation to adopt certain by-laws, as in the
case of a close corporation organized for specific purposes.
And the statute or general laws from which the corporation
derives its corporate existence may expressly require it to make
and adopt by-laws and specify to some extent what they shall
contain and the manner of their adoption. The mere fact,
however, of the existence of power in the corporation to adopt
by-laws does not ordinarily and of necessity make the exercise
of such power essential to its corporate life, or to the validity of
any of its acts.”
As 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,” by-laws are indispensable to
corporations in this jurisdiction. These may not be essential to
corporate birth but certainly, these are required by law for an
orderly governance and management of corporations.
Nonetheless, failure to file them within the period required by
law by no means tolls the automatic dissolution of a
corporation.
Automatic corporate dissolution for failure to file the by-laws
on time was never the intention of the legislature. Moreover,
even without resorting to the records of deliberations of the
Batasang Pambansa, the law itself provides the answer to the
issue propounded by petitioner.
Section 46 of the Corporation Code reveals the legislative
intent to attach a directory, and not mandatory, meaning for the
word “must” in the first sentence thereof. Note should be taken
of the second paragraph of the law which allows the filing of Under Section 6(I) of PD 902-A, the SEC is empowered to
the by-laws even prior to incorporation. This provision in the ‘suspend or revoke, after proper notice and hearing, the
same section of the Code rules out mandatory compliance with franchise or certificate of registration of a corporation’ on the
the requirement of filing the by-laws “within one (1) month ground inter alia of ‘failure to file by-laws within the required
after receipt of official notice of the issuance of its certificate period.’ It is clear from this provision that there must first of all
of incorporation by the Securities and Exchange Commission.” be a hearing to determine the existence of the ground, and
It necessarily follows that failure to file the by-laws within that secondly, assuming such finding, the penalty is not necessarily
period does not imply the “demise” of the corporation. revocation but may be only suspension of the charter. In fact,
under the rules and regulations of the SEC, failure to file the
By-laws may be necessary for the “government” of the by-laws on time may be penalized merely with the imposition
corporation but these are subordinate to the articles of of an administrative fine without affecting the corporate
incorporation as well as to the Corporation Code and related existence of the erring firm.
statutes. There are in fact cases where by-laws are unnecessary
to corporate existence or to the valid exercise of corporate
powers, thus: “In the absence of charter or statutory provisions
to the contrary, by-laws are not necessary either to the
existence of a corporation or to the valid exercise of the powers
conferred upon it, certainly in all cases where the charter
sufficiently provides for the government of the body; and even
where the governing statute in express terms confers upon the
corporation the power to adopt by-laws, the failure to exercise
the power will be ascribed to mere non-action which will not
render void any acts of the corporation which would otherwise
be valid.

Under PD 902-A, it is now clear that the failure to file by-laws

within the required period is only a ground for suspension or
revocation of the certificate of registration of corporations.