CONCEPTS & ATTRIBUTES

WILLIAM C. YAO, SR., LUISA C. YAO, RICHARD C. YAO, WILLIAM C. YAO JR.,
and ROGER C. YAO vs. THE PEOPLE OF THE PHILIPPINES, PETRON
CORPORATION and PILIPINAS SHELL PETROLEUM CORP., and its Principal,
SHELL INTL PETROLEUM CO. LTD.
FACTS: Petitioners are incorporators and officers of MASAGANA GAS
CORPORATION (MASAGANA), an entity engaged in the refilling, sale and
distribution of LPG products.
Private respondents Petron Corporation (Petron) and Pilipinas Shell Petroleum
Corporation (Pilipinas Shell) are 2 of the largest bulk suppliers and producers of LPG
in the Philippines. Their LPG products are sold under the marks "GASUL" and
"SHELLANE," respectively. Petron is the registered owner in the Philippines of the
trademarks GASUL and GASUL cylinders used for its LPG products. It is the sole
entity in the Philippines authorized to allow refillers and distributors to refill, use, sell,
and distribute GASUL LPG containers, products and its trademarks.
Pilipinas Shell, on the other hand, is the authorized user in the Philippines of the
tradename, trademarks, symbols, or designs of its principal, Shell International
Petroleum Company Limited (Shell International), including the marks SHELLANE
and SHELL device in connection with the production, sale and distribution of
SHELLANE LPGs. It is the only corporation in the Philippines authorized to allow
refillers and distributors to refill, use, sell and distribute SHELLANE LPG containers
and products.
In 2003, NBI agent Oblanca filed 2 applications for search warrant with the RTC
against petitioners and other occupants of the MASAGANA compound located at
Governors Drive, Barangay Lapidario, Trece Martires, Cavite City, for alleged
violation of Section 155, in relation to Section 170 of "The Intellectual Property Code
of the Philippines." The 2 applications for search warrant uniformly alleged petitioners
are actually producing, selling, offering for sale and/or distributing LPG products using
steel cylinders owned by, and bearing the tradenames, trademarks, and devices of
Petron and Pilipinas Shell, without authority and in violation of the rights of the said
entities.
NBI Agent Oblanca went to MASAGANAs refilling station located in Cavite to
investigate its activities and confirmed that MASAGANA is indeed engaged in the
unauthorized refilling, sale and/or distribution of [Gasul and] Shellane LPG cylinders.
A test-buy was conducted accompanied by Mr. Bernabe C. Alajar (hired by
respondents for their Brand Protection Program). After paying, they were issued Cash
Invoice and were thereafter assisted by the plant attendant in choosing empty GASUL
and SHELLANE 11 kg. cylinders. No valve seals were placed on the cylinders. While
inside the refilling plant doing the test-buy, they noticed that stockpiles of multibranded cylinders including GASUL and SHELLANE cylinders were stored near the
refilling station.
The Judge issued 2 SW covering the following items: empty/filled LPG cylinder
tanks/containers, bearing the tradename "SHELLANE", "SHELL" (Device) of Pilipinas
Shell Petroleum Corporation/ Petron Corporations (Petron) tradename and its
tradename "GASUL" and the trademarks and other devices owned by them;

machinery and/or equipment being used or intended to be used for the purpose of
illegally refilling LPG cylinders belonging to Pilipinas Shell & Petron bearing the
latters tradename as well as the marks belonging to Shell International & Petron
(refilling machine, storage tanks, compressors, hydraulic pumps, refilling hoses,
weighing scales, etc)
Thereafter, the Yaos filed with the RTC a Motion to Quash the 2 Search Warrants
stating that there is no probable cause for the issuance of the search warrant and the
conditions for the issuance of a search warrant were not complied with.
MASAGANA, as third party claimant, filed with the RTC a Motion for the Return of
Motor Compressor and LPG Refilling Machine. It claimed that it is the owner of the
said motor compressor and LPG refilling machine; that these items were used in the
operation of its legitimate business; and that their seizure will jeopardize its business
interests.
RTC denied both motions based on the testimonies (personal knowledge) of
Oblanca and Alajar as well as the documentary evidence. As regards the Order
denying the motion of MASAGANA for the return of its motor compressor and LPG
refilling machine, the RTC resolved that MASAGANA cannot be considered a third
party claimant whose rights were violated as a result of the seizure since the
evidence disclosed that petitioners are stockholders of MASAGANA and that they
conduct their business through the same juridical entity. It maintained that to rule
otherwise would result in the misapplication and debasement of the veil of corporate
fiction. It also stated that the veil of corporate fiction cannot be used as a refuge from
liability.
Further, the RTC ratiocinated that ownership by another person or entity of the seized
items is not a ground to order its return; that in seizures pursuant to a search warrant,
what is important is that the seized items were used or intended to be used as means
of committing the offense complained of; that by its very nature, the properties sought
to be returned in the instant case appear to be related to and intended for the illegal
activity for which the search warrants were applied for; and that the items seized are
instruments of an offense.
Petitioners filed Motions for Reconsideration but were denied by the RTC. Petitioners
appealed the 2 Orders of the RTC to CA via a special civil action for certiorari under
Rule 65. CA affirmed decision of RTC. It adopted in essence the bases and reasons
of the RTC in its two Orders.
ISSUE: W/N MASAGANA GAS CORP may be considered as third-party claimant
whose rights were violated as a result of the seizure
HELD: NO. Petitioners claim that MASAGANA has the right to intervene and to move
for the return of the seized items; that the items seized by the raiding team were
being used in the legitimate business of MASAGANA; that the raiding team had no
right to seize them under the guise that the same were being used in refilling GASUL
and SHELLANE LPG cylinders; and that there being no action for infringement filed
against them and/or MASAGANA from the seizure of the items up to the present, it is
only fair that the seized articles be returned to the lawful owner in accordance with
Section 20 of A.M. No. 02-1-06-SC.

It is an elementary and fundamental principle of corporation law that a corporation is

an entity separate and distinct from its stockholders, directors or officers. However,
when the notion of legal entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the corporation as an association of
persons, or in the case of two corporations merge them into one. In other words, the
law will not recognize the separate corporate existence if the corporation is being
used pursuant to the foregoing unlawful objectives. This non-recognition is sometimes
referred to as the doctrine of piercing the veil of corporate entity or disregarding the
fiction of corporate entity. Where the separate corporate entity is disregarded, the
corporation will be treated merely as an association of persons and the stockholders
or members will be considered as the corporation, that is, liability will attach
personally or directly to the officers and stockholders.
As we now find, the petitioners, as directors/officers of MASAGANA, are utilizing the
latter in violating the intellectual property rights of Petron and Pilipinas Shell. Thus,
petitioners collectively and MASAGANA should be considered as one and the same
person for liability purposes. Consequently, MASAGANAs third party claim serves no
refuge for petitioners.
Even if we were to sustain the separate personality of MASAGANA from that of the
petitioners, the effect will be the same. The law does not require that the property to
be seized should be owned by the person against whom the search warrant is
directed. Ownership, therefore, is of no consequence, and it is sufficient that the
person against whom the warrant is directed has control or possession of the property
sought to be seized. Hence, even if, as petitioners claimed, the properties seized
belong to MASAGANA as a separate entity, their seizure pursuant to the search
warrants is still valid.
Further, it is apparent that the motor compressor, LPG refilling machine and the
GASUL and SHELL LPG cylinders seized were the corpus delicti, the body or
substance of the crime, or the evidence of the commission of trademark infringement.
These were the very instruments used or intended to be used by the petitioners in
trademark infringement. It is possible that, if returned to MASAGANA, these items will
be used again in violating the intellectual property rights of Petron and Pilipinas Shell.
Thus, the RTC was justified in denying the petitioners motion for their return so as to
prevent the petitioners and/or MASAGANA from using them again in trademark
infringement.

Petitioners reliance on Section 20 of A.M. No. 02-1-06-SC, is not tenable. As correctly

observed by the Solicitor General, A.M. 02-1-06-SC is not applicable in the present
case because it governs only searches and seizures in civil actions for infringement of
intellectual property rights. The offense complained of herein is for criminal violation of
Section 155 in relation to Section 170 of Republic Act No. 8293.CONTROL
SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP, INC. vs.
CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION and SPS.
NARCISO & AIDA QUIAMBAO
FACTS: Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged in
the construction business, with petitioner-spouses ROBERTO and EVELYN DAVID
as its President and Treasurer, respectively.
In 1997, respondent-spouses NARCISO and AIDA QUIAMBAO engaged the
services of petitioner CGI to design and construct a 5-storey concrete
office/residential building on their land in Tondo, Manila. The Design/Build Contract of
the parties provided that: (a) petitioner CGI shall prepare the working drawings for the
construction project; (b) respondents shall pay petitioner CGI the sum of
P7,309,821.51 for the construction of the building, including the costs of labor,
materials and equipment, and P200,000 for the cost of the design; and (c) the
construction of the building shall be completed within 9 months after securing the
building permit.
The completion of the construction was initially scheduled on or before July 16, 1998
but was extended to November 15, 1998 upon agreement of the parties. It appears,
however, that petitioners failed to follow the specifications and plans as previously
agreed upon. Respondents demanded the correction of the errors but petitioners
failed to act on their complaint. Consequently, respondents rescinded the contract on
October 31, 1998, after paying 74.84% of the cost of construction.
Respondents then engaged the services of another contractor, RRA and Associates,
to inspect the project and assess the actual accomplishment of petitioners in the
construction of the building. It was found that petitioners revised and deviated from
the structural plan of the building without notice to or approval by the respondents.
Respondents filed a case for breach of contract against petitioners before the RTC. At
the pre-trial conference, the parties agreed to submit the case for arbitration to the
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC). Respondents
filed a request for arbitration with the CIAC and nominated Atty. Custodio O. Parlade
as arbitrator. Atty. Parlade was appointed by the CIAC as sole arbitrator to resolve the
dispute. With the agreement of the parties, Atty. Parlade designated Engr. Loreto C.
Aquino to assist him in assessing the technical aspect of the case. The RTC of Manila
then dismissed the case and transmitted its records to the CIAC.
After conducting hearings and 2 ocular inspections of the construction site, the
arbitrator rendered judgment against petitioners. Award was made in favor of the
Quiambaos against the Davids and CGI, jointly and severally, the lost rentals,
rectification, cost to complete, damages, professional fees, miscellaneous expenses,
utility bills, moral and exemplary damages, attorneys fees amounting to
P4,073,229.94 with interest after deducting the amounts due to CGI.

Petitioners appealed to the CA which affirmed the arbitrators Decision but deleted the
award for lost rentals.
ISSUE: W/N petitioner-spouses David can be held jointly and severally liable with
petitioner CGI in the payment of the arbitral award as they are merely its corporate
officers.
HELD: YES. As a general rule, the officers of a corporation are not personally liable
for their official acts unless it is shown that they have exceeded their authority.
However, the personal liability of a corporate director, trustee or officer, along with
corporation, may so validly attach when he assents to a patently unlawful act of the
corporation or for bad faith or gross negligence in directing its affairs.
The following findings of CIAC would support its ruling in holding petitioners severally
and jointly liable with the Corporation:
" x x x When asked whether the Building was underdesigned considering the poor
quality of the soil, Engr. Villasenor defended his structural design as adequate. He
admitted that the revision of the plans which resulted in the construction of additional
columns was in pursuance of the request of Engr. David to revise the structural plans
to provide for a significant reduction of the cost of construction. When Engr. David
was asked for the justification for the revision of the plans, he confirmed that he
wanted to reduce the cost of construction. x x x"
Clearly, the case at bar does not raise any genuine issue of law. We reiterate the rule
that factual findings of construction arbitrators are final and conclusive and not
reviewable by this Court on appeal, except when the petitioner proves affirmatively
that: (1) the award was procured by corruption, fraud or other undue means; (2) there
was evident partiality or corruption of the arbitrators or of any of them; (3) the
arbitrators were guilty of misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the
controversy; (4) one or more of the arbitrators were disqualified to act as such under
section nine of Republic Act No. 876 and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which the rights of any party have
been materially prejudiced; or (5) the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and definite award upon the subject
matter submitted to them was not made. Petitioners failed to show that any of these
exceptions applies to the case at bar.

RIGHT OF SH
REPUBLIC OF THE PHILIPPINES (PCGG) vs. SANDIGANBAYAN and VICTOR
AFRICA, respondents. AEROCOM INVESTORS AND MANAGERS, INC., BENITO
NIETO, CARLOS NIETO, MANUEL NIETO III, RAMON NIETO, ROSARIO
ARELLANO, VICTORIA LEGARDA, ANGELA LOBREGAT, MA. RITA DE LOS
REYES, CARMEN TUAZON and RAFAEL VALDEZ, intervenors.
FACTS: On August 7, 1991, the Presidential Commission on Good Government
(PCGG) conducted an Eastern Telecommunications, Philippines, Inc. (ETPI)
stockholders meeting during which a PCGG controlled board of directors was elected.
A special stockholders meeting was later convened by the registered ETPI
stockholders wherein another set of board of directors was elected, as a result of
which two sets of such board and officers were elected.
Victor Africa, a stockholder of ETPI, alleging that the PCGG had since January 29,
1988 been "illegally 'exercising' the rights of stockholders of ETPI," especially in the
election of the members of the board of directors, filed the above-said motion before
the Sandiganbayan.
The PCGG did not object to Africa's motion provided that:
1) An Order be issued upholding the right of PCGG to vote all the Class "A"
shares of ETPI.
2) In the alternative, in the remote event that PCGG's right to vote the
sequestered shares be not upheld, an Order be issued:
a) Disregarding the Stock and Transfer Book and Booklet of Stock
Certificates of ETPI in determining who can vote the shares in an
Annual Stockholders Meeting of ETPI,
b) Allowing PCGG to vote 23.9% of the total subscription in ETPI, and
c) Directing the amendment of the Articles of Incorporation and By-laws of
ETPI providing for the minimum safeguards for the conservation of
assets . . . prior to the calling of a stockholders meeting.
The Sandiganbayan resolved Africa's motion ordering that:

An annual stockholders meeting of the ETPI for 1992 be held on Friday,

November 27, 1992, at 2:00PM, at the ETPI Board Room, Telecoms Plaza
in Makati.

The Executive Clerk of Court of this Division shall issue the call and notice
of annual stockholders meeting of ETPI addressed to all the duly
registered/recorded stockholders of ETPI.

The stockholders meeting shall be conducted under the supervision and

control of this Court, through Mr. Justice Sabino R. de Leon, Jr.

In accordance with the SC ruling in Cojuangco et al vs. Azcuna, et al.,

supra, only the registered owners, their duly authorized representatives or
their proxies may vote their corresponding shares.
The Sandiganbayan provided minimum safeguards to be carefully maintained until
final judicial resolution of the question of whether or not the sequestered shares of
stock (or in a proper case the underlying assets of the corporation concerned)
constitute ill-gotten wealth.

PCGG filed a petition alleging that Sandiganbayan acted with grave abuse of
discretion in ruling that registered SH of ETPI had the right to vote in spite of (a) the
ruling in PCGG v Africa and (b) clear showing that ETPIs stock and transfer book was
altered and cannot be used as the basis to determine who can vote in a SHs
meeting. It averred that Sandiganbayan likewise erred in ruling that PCGG cannot
vote at least 23.9% OCS of ETPI
Sandiganbayan issued a Resolution, which is being assailed in the herein second
petition, granting the PCGG "authority to cause the holding of a special stockholders'
meeting of ETPI for the sole purpose of increasing ETPI's authorized capital stock
and to vote therein the sequestered Class 'A' shares of stock. . . ." In said Resolution,
the Sandiganbayan held that there was an urgent necessity to increase ETPI's
authorized capital stock; there existed a prima facie factual foundation for the
issuance of the writ of sequestration covering the Class "A" shares of stock; and the
PCGG was entitled to vote the sequestered shares of stock.

(4) The safeguards laid down in the case of Cojuangco v. Roxas shall be incorporated
in the ETPI Articles of Incorporation substantially contemporaneous to, but not before,
the election of the ETPI Board of Directors.
(5) Members of the Sandiganbayan shall not participate in the stockholders meeting
for the election of the ETPI Board of Directors. Neither shall a Clerk of Court be
appointed to call such meeting and issue notices thereof. The Sandiganbayan shall
appoint, or the parties may agree to constitute, a committee of competent and
impartial persons to call, send notices and preside at the meeting for the election of
the ETPI Board of Directors; and
(6) This Court has no jurisdiction over the motion to cite the PCGG and its
accomplices in contempt and to nullify the stockholders meeting of March 17, 1997.
HELD:

The PCGG-controlled ETPI board of directors thus authorized the ETPI Chair and
Corporate Secretary to call the special stockholders meeting. Notices were sent to
those entitled to vote for a meeting on March 17, 1997. The meeting was held as
scheduled and the increase in ETPI's authorized capital stock from P250 Million to
P2.6 Billion was "unanimously approved."
Thereafter, Africa filed before this Court a motion to cite the PCGG "and its
accomplices" in contempt and "to nullify the 'stockholders meeting' called/conducted
by PCGG and its accomplices," he contending that only this Court, and not the
Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting
and vote the sequestered shares.
ISSUES:
1) W/N PCGG can vote the sequestered ETPI Class "A" shares in the stockholders
meeting for the election of the board of directors - NO
2) W/N the Stock and Transfer Book can be used as the basis for determining the
voting rights of the shareholders although some entries therein were alleged to be
altered "by substitution YES
3) W/N PCGG can vote at least 23.9% of the outstanding capital stock of ETPI YES
HELD (SUMMARY):
1) The PCGG cannot vote sequestered shares to elect the ETPI Board of Directors or
to amend the Articles of Incorporation for the purpose of increasing the authorized
capital stock unless there is a prima facie evidence showing that said shares are illgotten and there is an imminent danger of dissipation.
(2) The ETPI Stock and Transfer Book should be the basis for determining which
persons have the right to vote in the stockholders meeting for the election of the ETPI
Board of Directors.
(3) The PCGG is entitled to vote the shares ceded to it by Roberto S. Benedicto and
his controlled corporations under the Compromise Agreement, provided that the
shares are first registered in the name of the PCGG. The PCGG may not register the
transfer of the Malacaang and the Nieto shares in the ETPI Stock and Transfer Book;
however, it may vote the same as conservator provided that the PCGG satisfies the
two-tiered test devised by the Court in Cojuangco v. Calpo, supra.

a. PCGG May Not Exercise Acts of Ownership

The PCGG cannot exercise acts of dominion over property sequestered, frozen or
provisionally taken over. The act of sequestration, freezing or provisional takeover of
property does not import or bring about a divestment of title over said property; it does
not make the PCGG the owner thereof. In relation to the property sequestered, frozen
or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it
can not perform acts of strict ownership; and this is specially true in the situations
contemplated by the sequestration rules where, unlike cases of receivership, for
example, no court exercises effective supervision or can upon due application and
hearing, grant authority for the performance of acts of dominion.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or
business sequestered or provisionally taken over, much like a court-appointed
receiver, such as to bring and defend actions in its own name; receive rents; collect
debts due; pay outstanding debts due; and generally do such other acts and things as
may be necessary to fulfill its mission as conservator and administrator. In this
context, it may in addition enjoin or restrain any actual or threatened commission of
acts by any person or entity that may render moot and academic, or frustrate or
otherwise make ineffectual its efforts to carry out its task.
Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the
PCGG may properly exercise the prerogative to vote sequestered stock of
corporations, granted to it by the President of the Philippines through a Memorandum.
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."
The stock is not to be voted to replace directors, or revise the articles or by-laws, or
otherwise bring about substantial changes in policy, program or practice of the
corporation except for demonstrably weighty and defensible grounds, and always in
the context of the stated purposes of sequestration or provisional takeover, i.e., to
prevent the dispersion or undue disposal of the corporate assets.

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.
The PCGG cannot thus vote sequestered shares, except when there are
"demonstrably weighty and defensible grounds" or "when essential to prevent
disappearance or wastage of corporate property."
The issue of whether PCGG may vote the sequestered shares in SMC necessitates a
determination of at least two factual matters: (PCGG v Cojuanco: two-tiered test)
1. Whether there is prima facie evidence showing that the said shares are ill-gotten
and thus belong to the state; and
2. Whether there is an immediate danger of dissipation thus necessitating their
continued sequestration and voting by the PCGG while the main issue pends with the
Sandiganbayan.
The two-tiered test, however, does not apply in cases involving funds of "public
character." In such cases, the government is granted the authority to vote said
shares, namely:
(1) Where government shares are taken over by private persons or entities who/which
registered them in their own names, and
(2) Where the capitalization or shares that were acquired with public funds somehow
landed in private hands.
In short, when sequestered shares registered in the names of private individuals or
entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered
test is applied. However, when the sequestered shares in the name of private
individuals or entities are shown, prima facie, to have been (1) originally government
shares, or (2) purchased with public funds or those affected with public interest, then
the two-tiered test does not apply. Rather, the public character exception in Baseco v.
PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the
shares.
It is through the right to vote that the stockholder participates in the management of
the corporation. The right to vote, unlike the rights to receive dividends and liquidating
distributions, is not a passive thing because management or administration is, under
the Corporation Code, vested in the board of directors, with certain reserved powers
residing in the stockholders directly. The board of directors and executive committee
(or management committee) and the corporate officers selected by the board may
make it very difficult if not impossible for the PCGG to carry out its duties as
conservator if the Board or officers do not cooperate, are hostile or antagonistic to the
conservator's objectives.

NON-STOCK CORP
PADCOM CONDOMINIUM CORPORATION vs. ORTIGAS CENTER ASSOCIATION,
INC
FACTS: Petitioner Padcom Condominium Corporation (PADCOM) owns and
manages the PADCOM Building located in Pasig City. The land on which the building
stands was originally acquired from the Ortigas & Company, Limited Partnership
(OCLP), by Tierra Development Corporation (TDC) under a Deed of Sale dated 4
September 1974.
Among the terms and conditions in the deed of sale was the requirement that the
transferee and its successor-in-interest must become members of an association for
realty owners and long-term lessees in the area later known as the Ortigas Center.
Subsequently, the said lot, together with improvements thereon, was conveyed by
TDC in favor of PADCOM in a Deed of Transfer dated 25 February 1975.
In 1982, respondent Ortigas Center Association, Inc. (hereafter the Association)
was organized to advance the interests and promote the general welfare of the real
estate owners and long-term lessees of lots in the Ortigas Center. It sought the
collection of membership dues worth P2,724.40 per month from PADCOM. The
corporate books showed that PADCOM owed the Association P639,961.47,
representing membership dues, interests and penalty charges from April 1983 to June
1993. The letters exchanged between the parties through the years showed repeated
demands for payment, requests for extensions of payment, and even a settlement
scheme proposed by PADCOM in September 1990.
In view of PADCOMs failure and refusal to pay its arrears in monthly dues, including
interests and penalties thereon, the Association filed a complaint for collection of sum
of money before the trial court. The Association averred that purchasers of lands
within the Ortigas Center complex from OCLP are obligated under their contracts of
sale to become members of the Association. This obligation was allegedly passed on
to PADCOM when it bought the lot from TDC, its predecessor-in-interest.
In its answer, PADCOM contended that it is a non-stock, non-profit association, and
for it to become a special member of the Association, it should first apply for and be
accepted for membership by the latters Board of Directors. No automatic
membership was apparently contemplated in the Associations By-laws. PADCOM
added that it could not be compelled to become a member without violating its right to
freedom of association. And since it was not a member of the Association, it was not
liable for membership dues, interests and penalties.7
During the trial, the Association presented its accountant as lone witness to prove that
PADCOM was, indeed, one of its members and, as such, did not pay its membership
dues.
PADCOM, on the other hand, did not present its evidence; instead it filed a motion to
dismiss by way of demurrer to evidence. It alleged that the facts established by the
Association showed no right to the relief prayed for. It claimed that the provisions of
the Associations By-laws and the Deed of Transfer did not contemplate automatic
membership. Rather, the owner or long-term lessee becomes a member of the

Association only after applying with and being accepted by its Board of Directors.
Assuming further that PADCOM was a member of the Association, the latter failed to
show that the collection of monthly dues was a valid corporate act duly authorized by
a proper resolution of the Associations Board of Directors.
RTC dismissed the Associations complaint. CA reversed and set aside RTCs
decision ordering PADCOM to pay the appellant (the Association) the membership
dues in arrears inclusive of earned interests and penalties; and attorneys fees.
CA justified its ruling by declaring that PADCOM automatically became a member of
the Association when the land was sold to TDC. The intent to pass the obligation to
prospective transferees was evident from the annotation of the same clause at the
back of the Transfer Certificate of Title covering the lot. Despite disavowal of
membership, PADCOMs membership in the Association was evident from these
facts: (1) PADCOM was included in the Associations list of bona fide members as of
30 March 1995; (2) Narciso Padilla, PADCOMs President, was one of the
Associations incorporators; and (3) having received the demands for payment,
PADCOM not only acknowledged them, but asked for and was granted repeated
extensions, and even proposed a scheme for the settlement of its obligation.
ISSUE: W/N PADCOM can be compelled to join the Association pursuant to the
provision on automatic membership appearing as a condition in the Deed of in 1974
and the annotation thereof on the TCT
PADCOM contends that it cannot be compelled to be a member of the Association
solely by virtue of the "automatic membership" clause that appears on the title of the
property and the Deed of Transfer. In 1975, when it bought the land, the Association
was still inexistent. Therefore, the provision on automatic membership was
anticipatory in nature, subject to the actual formation of the Association and the
subsequent formulation of its implementing rules.
PADCOM likewise maintains that the Associations By-laws requires an application for
membership. Since it never sought membership, the CA erred in concluding that it
was a member of the Association by implication. Aside from the lack of evidence
proving such membership, the Association has no basis to collect monthly dues since
there is no board resolution defining and prescribing how much should be paid.
For its part, the Association claims that the Deed of Sale between OCLP and TDC
clearly stipulates automatic membership for the owners of lots in the Ortigas Center,
including their successors-in-interest.
HELD: When the land in question was bought by PADCOM's predecessor-in-interest,
TDC, from OCLP, the sale bound TDC to comply with paragraph (G) of the covenants,
conditions and restrictions of the Deed of Sale. It was agreed by the parties that dues
shall be collected from an automatic member and such fees or assessments shall be
a lien on the property. The stipulation was likewise annotated at the back of TCT
issued to TDC. When the latter sold the lot to PADCOM on 25 February 1975, the
Deed of Transfer expressly stated that "for and in consideration of the foregoing
premises, the DEVELOPER, by these presents, cedes, transfers and conveys unto
the CORPORATION the above-described parcel of land evidenced by TCT, as well as
the Common and Limited Common Areas of the Condominium project mentioned and

described in the Master Deed with Declaration of Restrictions, free from all liens and
encumbrances, except those already annotated at the back of said TCT."
As the provision on automatic membership was annotated in the Certificate of Title
and made a condition in the Deed of Transfer in favor of PADCOM; consequently,
PADCOM is bound by and must comply with the covenant.
Moreover, Article 1311 of the Civil Code provides that contracts take effect between
the parties, their assigns and heirs. Since PADCOM is the successor-in-interest of
TDC, it follows that the stipulation on automatic membership with the Association is
also binding on the former. Further, as lot owner, PADCOM is a regular member of the
Association. No application for membership is necessary. If at all, acceptance by the
Board of Directors is a ministerial function considering that PADCOM is deemed to be
a regular member upon the acquisition of the lot pursuant to the automatic
membership clause annotated in the Certificate of Title of the property and the Deed
of Transfer.
Furthermore, the automatic membership clause is not a violation of its freedom of
association. PADCOM was never forced to join the association. It could have avoided
such membership by not buying the land from TDC. Nobody forced it to buy the land
when it bought the building with the annotation of the condition or lien on the
Certificate of Title thereof and accepted the Deed. PADCOM voluntarily agreed to be
bound by and respect the condition, and thus to join the Association.
Lastly, under the principle of estoppel, from the facts or circumstances it enumerated
in the appellate court's decision, PADCOM is barred from disclaiming membership in
the Association.

FOREIGN CORP
THE HOME INSURANCE COMPANY vs. EASTERN SHIPPING LINES and/or
ANGEL JOSE TRANSPORTATION, INC. and HON. A. MELENCIO-HERRERA
FACTS: L-34382 - In 1967, S. Kajita & Co., on behalf of Atlas Consolidated Mining &
Development Corporation, shipped on board the SS "Eastern Jupiter' from Osaka,
Japan, 2,361 coils of "Black Hot Rolled Copper Wire Rods." The said VESSEL is
owned and operated by defendant Eastern Shipping Lines (CARRIER). The shipment
was insured with plaintiff against all risks in the amount of P1,580,105.06 under its
Insurance Policy.
The coils discharged from the VESSEL numbered 2,361, of which 53 were in bad
order. What the CONSIGNEE ultimately received at its warehouse was the same
number of 2,361 coils with 73 coils loose and partly cut, and 28 coils entangled, partly
cut, and which had to be considered as scrap. Upon weighing at CONSIGNEE's
warehouse, the 2,361 coils were found to weight 263,940.85 kilos as against its
invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15 kilos, according
to Exhibit "A", or 1,209,56 lbs., according to the claims presented by the consignee
against the plaintiff, the CARRIER, and the TRANSPORTATION COMPANY
For the loss/damage suffered by the cargo, plaintiff paid the consignee under its
insurance policy the amount of P3,260.44, by virtue of which plaintiff became
subrogated to the rights and actions of the CONSIGNEE. Plaintiff made demands for
payment against the CARRIER and the TRANSPORTATION COMPANY for
reimbursement of the aforesaid amount but each refused to pay the same. ...
L-34383 In 1966, the Hansa Transport Kontor shipped from Bremen, Germany, 30
packages of Service Parts of Farm Equipment and Implements on board the
VESSEL, SS "NEDER RIJN" owned by the defendant, N. V. Nedlloyd Lijnen, and
represented in the Philippines by its local agent, the defendant Columbian
Philippines, Inc. (CARRIER). The shipment was insured with plaintiff company under
its Cargo Policy No. AS-73735 "with average terms" for P98,567.79.
The packages discharged from the VESSEL numbered 29, of which 7 packages
were found to be in bad order. What the CONSIGNEE ultimately received at its
warehouse was the same number of 29 packages with 9 packages in bad order. Out
of these 9 packages, 1 package was accepted by the CONSIGNEE in good order due
to the negligible damages sustained. Upon inspection at the consignee's warehouse,
the contents of 3 out of the 8 cases were also found to be complete and intact,
leaving 5 cases in bad order. The contents of these 5 packages showed several items
missing in the total amount of $131.14; while the contents of the undelivered 1
package were valued at $394.66, or a total of $525.80 or P2,426.98.
For the short-delivery of 1 package and the missing items in 5 other packages,
plaintiff paid the CONSIGNEE under its Insurance Cargo Policy the amount of
P2,426.98, by virtue of which plaintiff became subrogated to the rights and actions of
the CONSIGNEE. Demands were made on defendants CARRIER and CONSIGNEE
for reimbursement thereof but they failed and refused to pay the same.

When the insurance contracts which formed the basis of these cases were executed,
Home Insurance had not yet secured the necessary licenses and authority; but when
the complaints in these 2 cases were filed, Home Insurance had already secured the
necessary license to conduct its insurance business in the Philippines. In both cases,
Home Insurance made the averment regarding its capacity to sue, as that it "is a
foreign insurance company duly authorized to do business in the Philippines through
its agent, Mr. Victor H. Bello, of legal age and with office address at Oledan Building,
Ayala Avenue, Makati, Rizal."
The CFI Manila however, dismissed the complaints in both cases, on the ground that
Home Insurance had failed to prove its capacity to sue. Home Insurance filed the
petitions for review on certiorari, which were consolidated.
ISSUE: W/N Home Insurance, a foreign corporation licensed to do business at the
time of the filing of the case, has the capacity to sue for claims on contracts made
when it has no license yet to do business in the PH
HELD: In the leading case of Marshall Wells Co., that the object of Sections 68 and
69 of the Corporation Law was to subject the foreign corporation doing business in
the Philippines to the jurisdiction of Philippine courts.
The court distinguished between the denial of a right to take remedial action and the
penal sanction for non-registration. Insofar as transacting business without a license
is concerned, Section 69 of the Corporation Law imposed a penal sanction
imprisonment for not less than 6 months nor more than 2 years or payment of a fine
not less than P200.00 nor more than P1,000.00 or both in the discretion of the court.
There is a penalty for transacting business without registration. And insofar as
litigation is concerned, the foreign corporation or its assignee may not maintain any
suit for the recovery of any debt, claim, or demand whatever.
The Corporation Law is silent on whether or not the contract executed by a foreign
corporation with no capacity to sue is null and void ab initio. Still, there is no question
that the contracts are enforceable. The requirement of registration affects only the
remedy. Significantly, Batas Pambansa 68, the Corporation Code of the Philippines
has corrected the ambiguity caused by the wording of Section 69 of the old
Corporation Law.
Section 133 of the present Corporation Code provides that "No foreign corporation
transacting business in the Philippines without a license, or its successors or assigns,
shall be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency in the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws." The old Section 69 has been
reworded in terms of non-access to courts and administrative agencies in order to
maintain or intervene in any action or proceeding. The prohibition against doing
business without first securing a license is now given penal sanction which is also
applicable to other violations of the Corporation Code under the general provisions of
Section 144 of the Code. It is, therefore, not necessary to declare the contract null
and void even as against the erring foreign corporation. The penal sanction for the
violation and the denial of access to Philippine courts and administrative bodies are
sufficient from the viewpoint of legislative policy.

Herein, the lack of capacity at the time of the execution of the contracts was cured by
the subsequent registration is also strengthened by the procedural aspects of these
cases. Home Insurance averred in its complaints that it is a foreign insurance
company, that it is authorized to do business in the Philippines, that its agent is Mr.

Victor H. Bello, and that its office address is the Oledan Building at Ayala Avenue,
Makati. These are all the averments required by Section 4, Rule 8 of the Rules of
Court. Home Insurance sufficiently alleged its capacity to sue.